Study: Puerto Rico credit unions have expansion opportunities in US Hispanic markets
Puerto Rico credit unions “have a great opportunity” for expansion with the growing Puerto Rican migratory flow to the US mainland, where they can also grab part of the Hispanic market that does not yet have banking services, according to a study by local analysis firm Estudios Técnicos.
Other growth challenges for Puerto Rican credit unions are to use technology to expand their customer base, diversify digital products, and penetrate millennial and generation Z markets, without neglecting services to older adults.
These were the main recommendations by Economist Leslie Adames, director of the Economic Policy and Analysis Division of Estudios Técnicos Inc., during his recent presentation to the Puerto Rico Credit Union Executives Association (ASEC, in Spanish).
“Although the Puerto Rican diaspora has been growing, it represents only 9% of the 61 million Hispanics residing in the United States in 2019. By 2040 the population of Hispanics is projected to reach 87.6 million, 23% of the United States population,” said Adames.
“The Hispanic market represents an opportunity for credit unions. 21% of the Hispanic population is underbanked and 9% is unbanked, according to a 2020 Federal Reserve report,” he said.
“Personal treatment and focus on customer service would position credit unions as attractive financial institutions in contrast to commercial banks,” Adames said during the “Reinvención Cooperativa” convention.
Only 4.2 million Hispanics are credit union customers in the US mainland — this is a penetration of only 6.8% in the market.
“This population has an average income of less than $25,000 and an education level of high school or less, so financial inclusion is important since many opt for other alternatives of financial services such as pawn shops, check cashing services and pay day loans,” Adames said.
In the case of the Puerto Rican diaspora, they have greater purchasing power than other Hispanics, but many live in rented housing. Since 2000, people of Puerto Rican origin born in the United States increased to 5.6 million. The number of Puerto Ricans born on the island who emigrated grew by 27% to 1.6 million.
The states with the highest Puerto Rican populations are Florida, Texas, Pennsylvania, New York, and Massachusetts, where there would be more opportunity for Puerto Rican credit unions to offer them banking services.
In considering what services credit unions could provide, Adames said consumer and auto loans have been the fastest-growing products within the Hispanic population on the US mainland.
In 2017 and 2018, the percent growth in the use of Hispanic financial services was 22% in personal loans, 18% in auto loans, 9% in mortgages, 8% in credit cards and 4% in checking accounts.
“An expansion in the use of digital financial services is expected, especially after the pandemic. The digital evolution in the financial sector along with changes in demographics mark differences in usage and perceptions between generations,” said Adames.
“One in three Gen Zers and one in five millennials got a loan online, which represents an increase of 1.5 times since 2018. Credit unions and other financial entities are active in managing internal changes to adapt to the new competitive reality,” he said.
Finally, Adames recommended that credit unions in Puerto Rico: strengthen the capital base to achieve financial flexibility; invest in alliances focused on closing the digital divide; and use technology to expand their customer base and diversify products and services with instant payments, personal finance solutions, and various payment methods.
Likewise, they must penetrate markets across generations: conquer millennial and Gen Z markets, while developing accessible services for older people.