While the U.S. Latino's economic force grows to represent $3.2 trillion, financial disparities and poor access to traditional banking are still a challenge for many in this 63 million people group, a market opportunity Hispanic-owned fintech seeks to tap into.
According to Lionel Carrasco, a founding partner of h.way, the firm was born to cater to the Latinos' financial needs following a model that offers prosperity while taking into account the cultural nuances of this demography.
A challenge for any neobank that wants to do business with Latinos is that they offer similar products using the same family-first approach. Carrasco, in an interview with The Latin Times, said in the case of h.com the differentiator is the "human" financial tools they provide their Latino customers. Fintechs in Latin America, Carrasco says, help their clients solve Latin American financial problems, "not those that Latinos go through when they arrive in the U.S."
The entrepreneur says that a financial approach to clients involves taking into account the way they relate to their money. "Latinos have their own way of managing money, savings, and incomes. An issue that can also be linked to the way we Latinos bond with affections," Carrasco said.
And the bond between family, affection and money is seen in the fact that many Latinos living in the U.S. help support those who are at home.
According to a 2022 World Bank Report, remittances to Latin America and the Caribbean are estimated to have grown 9.3% in 2022 to $142 billion. Data for the first nine months of 2022 show a 45% increase for Nicaragua, 20% for Guatemala, 15% for Mexico, and 9% for Colombia. Stronger employment of migrants from Latin America in the United States contributed to remittance flows.
However the arrival to "the land of opportunities" for many of the Hispanics implies going through a new path of complexities. One of the greatest is inserting themselves financially in the U.S., with a very different money culture. Even those arriving with work permission have all kinds of issues accessing traditional banks. Without a credit history, credit cards, or social security numbers, Hispanics are left out of the U.S. banking system.
The 2022 Federal Reserve Report "Economic Well-being of U.S Households in 2022" states: "unbanked rates were particularly high among adults with low income; 17% of adults with income (below $25,000 were unbanked) compared with 1% of adults with income of $50,000 to $99,999. Unbanked rates were also higher among younger adults (10%), Black (13%) and Hispanic adults (10%), and adults with a disability (10%).
In this mismatch between financial expectations and reality, many fintech companies are exploding trying to include and serve clients that traditional banks leave unattended due to the high requirements to access their services.
A 2022 report on the economic situation of Hispanics in the U.S. by the Joint Economic Committee Democrats states that for this group "disparities persist in earnings, wealth, economic opportunity and access to the financial system." According to the report, Black and Hispanic Americans are more than twice as likely as White Americans to be unbanked or underbanked, which forces Black and Hispanic Americans to rely on alternative, and costly, financial services every day.
Read the interview with Carrasco (edited for clarity):
The Latin Times: In recent months, fintechs founded in Latin America have entered the market targeting the unbanked consumers in the region. How is h.way different from these firms and from those that already exist in the U.S. market?
Lionel Carrasco: We see ample pan-regional opportunity represented by 64 million Hispanics and their families abroad and concluded that the magnitude of the (unbanked) problem created an opportunity. Many firms decided to address the opportunity following the conventional model of garage startups. An effective approach requires a platform, not just a pre-paid debit card. To make a difference we needed to be able to offer more and craft products designed for Hispanics and not only re-brand financial products created for the predominantly White Baby Boomers.
What are the main financial problems that h.way offers to tackle on behalf of the Hispanic community living in the US?
Our community struggles to get to the end of the month. They may have a bank account, but more than half have used check cashing services in 2022. They use banks as piggy banks. Traditional banks offer products that do not fit their money habits. We created a product called Duo cards, where you can open an account, create up to 5 "buckets" or designations of money for your family, and distribute independent debit cards. This allows families to manage their financial needs in their own way.
Given that there is a large number of unbanked Hispanic informal workers in the US who send remittances to their families in Latam, is there any feature that h.way provides to facilitate this?
Remittance service is a pillar for us. The industry operates under 100-year-old rules, and the total cost of remittance going as high as 10% is impossible to justify. We decided to lower costs to below 2% and offer 1% cashback. Most importantly, we aim to foster the adoption of digital remittances, but we still offer people the option to go to 85,000 retail outlets and deposit cash if that is how they prefer to operate. We serve 23 countries in Latin America, supported by a strategic alliance with Mastercard that delivers real-time money 24/7.
Why the Latino community can be a good business for a financial company, even if there are many unbanked both in the U.S. and in their countries of origin?
We continued to be perplexed by the impact of Latinos on the U.S. economy and the impact of those who live between two countries. If Hispanics were a country, they would be the (fifth-largest) economy worldwide. Seven out of 10 small businesses are started by Hispanics. The average yearly income of Hispanics has grown by 60% in the last decade, and they contribute to some Latin American countries' GDP by up to 25%. Mexico received double the amount of remittances last year compared to 2020. At h.way we want to connect this economy with digital financial services, repurposing existing payments, pathways, and regulations by providing better and more profitable products. The field is ready; digital wallets are happening everywhere, and we are ready to help.
At your company, people on the staff experienced some of the financial issues that plague Hispanics in the U.S. How did that shape the services the firm offers?
My co-founder Marcela Henao and I came to the U.S. with work visas. Nevertheless, we suffered in our attempts to be accepted in the financial ecosystem. As we like to say, when banks turn you down, your family becomes your bank; we want to be the family for all the Hispanics coming here to build a stronger and more inclusive American dream. Marcela left Colombia after the violence and helped build the world's most significant internet access point. In my case, I left Bolivia because a military dictatorship tried to kill democracy. We developed h.way because we know it is needed, and we want to improve things.
-This article was corrected to reflect the right name of the co-founder: Carrasco
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