Banking on the Hispanic Market

As we have noted in earlier issues of Spotlight, Hispanics, both in the U.S. and South America, offer an under-served and growing market. Citigroup acted on these insights about a year ago by paying $12.5 billion for Banamex, Mexico's second largest bank. In their article in Business Week, Geri Smith and Heather Timmons explain how Citi has capitalized on this acquisition to gain a major presence in the Hispanic market, both here and in Mexico. At the time of the purchase, Banex had 28 percent of Mexican bank deposits, 34 percent of credit card loans, 22 percent of mutual funds and 23 percent of branches.

One of Citigroup's first steps was to take advantage of the differences in finance rates charged to consumers in the U.S. and Mexico. Citigroup's initial target market was the 35 million Hispanics in the U.S., of who about 65 percent are of Mexican origin. These send about $10 billion a year to Mexico. Citigroup wanted some of this action. First, it offered Hispanic immigrants Banamex credit cards backed by their deposits at the bank. Afar a year, they were converted to regular credit cards. Then, just before Mother's Day, Banamex sent out catalogs of household appliances to some 20,000 Mexicans living in Los Angeles, Chicago and Houston. These catalogs offered them a deal that would be hard to reject. Interest rates in Mexico on credit cards to finance the purchase of home appliances ranged from 100 percent to 130 percent. In contrast, interest rates on credit cards in the U.S. were commonly around 18 percent. Rather than pay for mother's new washing machine by sending her the monthly payments and letting her pay 120 percent, he could buy it for her on his credit card on which he was paying only 18 percent. Such an arrangement was good for both mother and son, and it also reduced the $10 billion that Mexican immigrants were sending home.