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THE WALL STREET JOURNAL
Banco Popular Courts Hispanics
With Bank Vans, Check-Cashing
By JOEL MILLMAN
March 6, 2001
LOS ANGELES -- The gritty industrial flatlands here hardly seem like a center of international finance. Sheet-metal shops, apparel makers and toxic-waste processors are the types of businesses that thrive among the freeway ramps.
Yet the largest Hispanic bank in America, Banco Popular Inc., is aggressively marketing itself to these companies and their work force -- mostly immigrant labor, much of it illegal. At stake: a chunk of the estimated $10 billion immigrants wire south of the border each year. The bank courts those dollars every Friday payday with a fleet of armored check-cashing vans roaming among the factories, plant nurseries, hospitals and anywhere else immigrant workers congregate.
"Some of these workers are going to be owners one day," says Henry Garcia, the bank's director of mobile operations. "Right now they don't need the full services of a bank. But when they're ready to graduate, we want to be there."
Banco Popular, based in San Juan, Puerto Rico, is taking on new territory after 40 years as the No. 1 bank in Hispanic New York. Its target is the mostly Mexican barrios of Southern California, where different demographics demand some creative marketing. Instead of relying on the community's savings for growth, Banco Popular is fishing for lucrative fees in the vast river of cash that rushes through the work force on its way back to families in Mexico.
Banco Popular operates 17 full-service bank branches in Southern California and has 40 Popular Cash Express outlets statewide to handle the booming wire-transfer trade. Shuttling between them are 52 vans, making quick stops at job sites in industrial areas to cash checks and build brand recognition within the city's exploding immigrant community.
Besides being undocumented, most of the customers here are "unbanked," an industry term for people who don't have checking or savings accounts and are largely ignored by banks. But for Banco Popular, these workers are the depositors of the future.
Until then, they are a lucrative market for the services immigrants buy. Besides the 1.1% commission Banco Popular earns on its check-cashing transactions -- a $40,000 windfall on a busy Friday -- the trucks act as mobile billboards, advertising Banco Popular's other services, such as money orders, debit cards and bill-paying. With luck, some of the cash the trucks dispense will filter back to the Cash Express storefronts to be wired to families back home, thus generating another fee. As immigrants establish new families, the thinking goes, they will switch from check cashing and wire transfers to direct bank deposits, preferably at Banco Popular.
Popular Inc., the bank's parent in San Juan, was founded in 1893, when Puerto Rico was still part of Spain's overseas empire. After World War II, the bank followed Puerto Rican migrants north, establishing a branch network in enclaves such as New York's East Harlem and the South Bronx. Since 1990, it has put branches in Texas, Illinois, Florida and California, growing a mainland deposit base to $4 billion from $200 million. During that same period, Banco Popular's shares, which trade on Nasdaq under the symbol BPOP, have more than quintupled. The stock was at $27.69, up six cents, in 4 p.m. Nasdaq Stock Market trading Monday.
Until recently, Banco Popular's growth strategy had been to cater to working families and small businesses. It would often buy inner-city branches of older chains whose clients assimilated and moved on to the suburbs. Moving west, however, the bank's core market has changed. After starting with a largely Caribbean -- and largely legal -- immigrant community, Banco Popular now serves overwhelmingly Mexican and Central American customers. Most tend to be undocumented.
That market attracts plenty of competition. In the Los Angeles area alone, First Data Corp.'s Western Union unit and Viad Corp.'s MoneyGram Payment Services Inc. offer thousands more outlets than Banco Popular does for immigrants wiring money to the old country; Ace Cash Express Inc. of Irvine, Texas, also has many more check-cashing stores. Continental Currency Co., a local outfit, deploys nearly as many check-cashing trucks as Banco Popular to cater to the same workers.
But Banco Popular is the only one to offer three activities -- wire transfer, check cashing and mobile services -- in one banking business. It has also been in the Hispanic market longest. Banco Popular has spent more than $50 million since 1997 building an unbanked division, adding more than 75 Popular Cash Express outlets to complement a retail-banking network that also includes Miami, Houston and Chicago. With its recent addition of check-cashing outlets in Phoenix and Washington, D.C., the company has entered two new markets where a full-service bank may follow. The bank is betting it can prevail over its bigger competitors in the near term, then profit by converting the unbanked into the banked. It's faring well enough so far that Western Union and Moneygram have lowered their fees on money transfers.
"Over half the population of Puerto Rico is unbanked, so this is a market Banco Popular knows," says Joe Gladue, who analyzes the group for Chapman Co., a Baltimore brokerage. "Meanwhile," he adds, "check cashing can be a very profitable business."
Mr. Garcia, the 50-year-old Banco Popular executive who supervises the unbanked services division in Los Angeles, came to the U.S. as a child from Cuba. He helped pioneer the truck-borne check-cashing industry in the 1980s with a company called Inglewood Quik Check, which Banco Popular acquired in 1998. Unlike "mobile banks," which are deployed mainly in rural areas such as South Dakota, Mr. Garcia's trucks don't provide a wide array of services. Speed is more important than building relationships; transactions average less than 30 seconds.
But speed can also kill. Catering to undocumented immigrants from a parking space on a city street leaves the bank vulnerable to scam artists offering counterfeit paychecks crafted on desktop computers. Catering to businesses that hire undocumented workers also exposes the bank to unscrupulous owners. Garment contractors are especially notorious for running out on creditors, stranding workers in lofts stripped of sewing machines with paychecks that prove worthless. Mr. Garcia's worst single hit: a jeans maker stiffed him for $66,000 after pulling up stakes. "These aren't binding transactions with the workers," Mr. Garcia says. "We cash their checks even if the company has nothing in the bank."
It's a risk most check-cashing outfits take on. Helping to cover such losses are commissions; Banco Popular charges 1.1%, plus 20 cents per check.
Dealing in cash, Banco Popular might also be vulnerable to drug dealers looking to move cash through the legal banking system, and who are especially keen to get their profits offshore. A year ago, in connection with other services offered by the bank, parent Popular agreed to toughen its know-your-customer due diligence after federal authorities discovered accounts at a bank branch in San Juan had been used by several alleged heroin traffickers named in a 1998 indictment. The bank itself wasn't charged, but details of the traffickers' alleged activities embarrassed Popular's top executives, including the chairman, Richard Carrion, who resigned his seat on the board of the Federal Reserve Bank of New York shortly after the case was revealed.
"We had poor internal controls, and we had this incident," says Jorge Junquera, Popular's senior vice president. "But we believe federal regulators are satisfied with the steps we are taking."
Building a dependable network of employers can help limit the bank's exposure to criminal activity. C.J. Fashions Inc., a sportswear manufacturer, brings Banco Popular's trucks right into its parking lot, where workers cash checks every Friday afternoon between 4 and 4:15.
"It's convenient for them, and convenient for me," says factory owner Joseph Shaheri, himself an immigrant from Iran. "If the truck doesn't come, they have to hustle around to another check-cashing place. Then, I get calls all day long: We have your worker here, can you describe him? If they don't know my company they won't cash his check."
A few blocks away at a fabric factory, workers are waiting as the Banco Popular truck pulls into the loading dock. Many know Mr. Garcia by name -- he sometimes accompanies the trucks on supervisory visits -- and linger to chat after cashing their checks.
Mario Rodriguez, a worker from El Salvador, promises to use Popular Cash Express the next time he sends money home. Gustavo Nino, a worker from Mexico, says he's thinking about opening a bank account. Mr. Garcia directs him to a branch in Huntington Park, which he assures Mr. Nino he will pass tonight on his bus ride home.
Write to Joel Millman at email@example.com