Banking

Immigrant-focused fintechs offer lessons for banks

A wave of challenger banks that cater to U.S. immigrants are expanding beyond basic bank accounts and credit cards to offer low-cost global remittances, discounts at local stores, international calling services and customer support in multiple languages.

Banks in regions with large immigrant communities might be particularly interested in how these challengers are winning over customers, often through word-of-mouth.

“If you are a bank in Florida or in the southwestern United States, making it easier to market to immigrant communities, especially those who have recently arrived, should be part of your business plan,” said Francisco Alvarez-Evangelista, a research associate at Aite Group.

Khalid Parekh, founder of Fair, plans to launch a banking and investing app for immigrants and others in April.

The founders of fintechs for immigrants all have stories about their own struggles with credit and other financial matters when they first moved to the United States.

Magnus Larsson, CEO of Majority, is currently based in Stockholm but remembers buying scratch cards to call home and the hassles of opening a bank account when he lived in the U.S. Naveen Qureshi, co-chief executive and product officer at Sable, a startup that offers a combined bank account and credit card, is originally from Pakistan and spent 10 years carving out her financial life in Canada only to find herself starting over when she moved across the border for grad school. Simon Tiemtore, CEO of Simba, built his credit history when he arrived from Burkina Faso 20 years ago — and then rebuilt it when he moved abroad for several years in between. Rohit Mittal, CEO of Stilt, slept on a friend’s couch for weeks after his arrival from India because he was unable to rent an apartment.

These experiences propelled them to create challenger banks that go beyond no-fee deposit accounts and credit cards that use alternative underwriting methods. They began bundling in international money transfers, financial education and more. These companies have all launched within the last two years, except Fair and Simba, which have yet to launch to the public.

The need for banking services that cater to immigrants could grow. In August, Pew Research reported that immigrants and their descendants are projected to account for 88% of U.S. population growth through 2065. At the same time, sponsor banks have made it easier for founders without a banking background to roll out their services.

There is a need for banking services that immigrants trust. Clare Seekins, head of marketing at Simba, says she has conducted hundreds of interviews within these communities over the past two years.

“I’ve spoken with so many immigrants who don’t even think about opening a bank account for two to three years because they think they need a certain amount of cash or they heard about someone who got screwed over by overdraft fees,” she said. “Unbanked and underbanked barely even begin to describe how these communities operate in the banking system.”

Beyond basic banking

Low-cost international money transfers top the list of features that immigrants prize most. According to data from the World Bank, the U.S. sees the highest outflows of remittance dollars by migrants compared with other countries around the world.

Majority, for example, is a mobile bank with dual headquarters in Houston and Sweden. When “members” subscribe to the app for $5 each month, they can access all of its services, including the fee-free money transfer system that Majority built itself. Simba, of New York, will offer one free remittance per customer each month using Visa Direct to push payments to the recipient’s debit card. It plans to enable bank account transfers and cash pickups in the future.

Majority also layers discounts to local food stores, coffee shops and more into its app, which for now mostly targets Nigerian immigrants in Houston and the Cuban population in Miami. The ability to place free international calls is another key component, because “if you’ve been living abroad, you know being connected with family is an important part of it,” said Larsson. “When you send money to someone in your home country you call and make sure the money is there.”

Users can also top up a relative’s mobile phone subscription in other countries, sometimes referred to as airtime.

Simba is working on its own version of rotating savings clubs that are popular in other countries and go by names like “tanda” or “susu.” They are a form of peer-to-peer lending where a group of people regularly contribute money to a single pot and take turns receiving the funds.

Fair, in Houston, is a digital platform that bundles together banking, lending, investing and retirement for a one-time $99 fee. It launches on March 1 for family and friends and on April 5 for all consumers. Although it is not targeting immigrants specifically, founder Khalid Parekh says that 35% to 40% of its audience are immigrants. Fair differentiates itself by offering its services in English, Spanish and Arabic.

Financial education is another important feature. Fair plans to host educational webinars when it launches, Majority posts articles and online resources on its website (for instance, how noncitizens can get a credit card), and Simba will offer financial coaching in partnership with Operation Hope, an Atlanta-based nonprofit that provides financial education to people with low or moderate incomes.

Power of social networks

These fintechs have also found ways to spread the word about their services without much formal marketing. Instead, they rely on trust.

“If you hear from a friend you trust in your Hispanic community or church or local club that they chose this banking or lending product and it works, that’s a better way to get more people to sign up than marketing on Facebook,” Alvarez-Evangelista of Aite Group said.

Simba has 5,000 people on its waiting list, “with no marketing,” Tiemtore said.

People in these communities “are all connected in informal ways,” Seekins said. “Everyone is on a couple of WhatsApp groups that are hundreds big.”

Some of the challenger banks have combined word-of-mouth with more formal marketing that resonates with its target audience.

Majority hires community members as brand ambassadors who pitch the product to friends, post photos from Majority activities on social media and invite community members to events they spearhead. Simba plans to hire community members to take banker-like roles, perhaps by holding office hours at local organizations to deliver technical support and financial literacy lessons.

Simba plans to use retired the soccer player Didier Drogba as a brand ambassador — a strategy shared by the challenger bank OnJuno, which recruited the Japanese-American chess player Hikaru Nakamura as an influencer for its product.

Not all of these tactics are easy — or even possible — for large banks to replicate. But Larsson, of Majority, suggests there is a place for both types of institutions.

“I believe the future of banking is vertical,” he said. “I can even see a future where we coexist, where we focus on our segment and they focus on theirs.”



 

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