Two Faces of Minority Banking
Monday, April 9, 2007
Two new Washington banks, one seven months old, the other about to open, are taking two different approaches to serving minority communities.
Urban Trust Bank, which opened its headquarters branch at 14th and I streets NW in September, has nationwide plans focused on African American customers. The federally chartered bank is owned by RLJ, the Bethesda-based company headed by Robert L. Johnson, founder of Black Entertainment Television.
NuAmerica Bank won approval from the D.C. Council last week to open a branch in Columbia Heights, from which it will target small businesses in the region's Hispanic sector, according to Julio Lopez-Brito, who will be its chairman.
But the banks' founders share the belief that their target markets are ripe for expansion that would benefit not only minority neighborhoods but also the banks' investors.
"A significant portion of urban consumers continue to be unbanked and under-banked," said Urban Trust's president, Dwight L. Bush. "We actually see these communities as viable, and our mission is . . . to bring these consumers into the financial mainstream, help them to become homeowners, to become entrepreneurs, and help them to create and maintain wealth in their neighborhoods."
Lopez-Brito, who got the idea for a niche bank serving the Hispanic community while working with a public television station aimed at Puerto Ricans, said his bank's goal was to create special relationships with Hispanic-owned businesses that need loans of $25,000 and more.
"It's marrying the idea of community banking, which has been such a proven concept in the U.S., and introducing the immigrant community and small businesses to take advantage of the community bank," Lopez-Brito said. "We will still do individual accounts. If you have a sole proprietorship, we are definitely interested is doing a mortgage for you and your employees. But the relationship will start with the business."
Low-income and minority communities are relatively untapped markets for banks, according to a study released last month by the National Community Reinvestment Coalition. Nearly 21 percent of all U.S. households do not have any relationship with banks, said John Taylor, president and chief executive of NCRC, a nonprofit group founded in 1990 that tries to attract investment to poor communities and neighborhoods. And "countless other consumers," he said, have personal savings accounts but often resort to expensive payday loans, pawnshops and check-cashing services to get cash.
The NCRC study documented the shortage of mainstream, regulated bank branches in working-class or minority neighborhoods, compared with white and upper-income neighborhoods around the country. The Washington area ranked eighth among the 25 cities studied for overall banking services available in lower-income neighborhoods. In recent years, a number of existing Washington area banks have opened branches in minority or low-income neighborhoods.
"Having full-service bank branches in under-served areas is critically important," Taylor said. "Much of the problem we have today in terms of mortgage foreclosures is the absence of full-service branches in low- and moderate-income and minority neighborhoods. "
Lopez-Brito is launching NuAmerica with $3 million from 15 investors, including $400,000 of his own money. The bank is trying to raise the equity to $20 million with an initial public offering, which will close April 30.
"Being owned and locally managed will make a big difference," said Lopez-Brito, a Venezuela native and a graduate of New York University's Stern School of Business. "From the landscaper to restaurant owner to a doctor who needs to outfit his office, we want businesses to be the nucleus of our bank. Second, any customer who wants to walk through the door and talk to the chairman, he can. I will be there. If he or she wants to talk to the chairman of Bank of America, good luck."
Urban Trust is operating on a different scale. It has $30 million in assets, offices in Washington and Orlando, and a federal charter under which it could expand to all 50 states. Johnson, who bought the bank a year ago, is talking with Wal-Mart about putting branches in stores around the country.
That prospect concerns Taylor, who said an Urban Trust-Wal-Mart partnership could undercut existing community banks that have strong relationships with their customers, just as Wal-Mart has been blamed for putting some small-town retailers out of business.
Johnson said a lot of Wal-Mart customers and employees are exactly the people who could use his bank. "We think this in fact gives us more access to people who need our services," he said. "The people who shop at Wal-Mart are a certain income level. They need financial services. They need financial information. They need credit. The people who shop there as well as the people who work there."
Urban Trust is targeting the African American market for mortgages, credit cards, student loans and small-business loans, Johnson said.
"We want to have a national footprint," he said. "There are no national brick-and-mortar African American businesses. You can go from cable companies or store to store and buy Ebony and Black Enterprise magazines, but I don't know where you can walk into an African American bank in Washington, New York, Boston, Charlotte and Richmond."
Johnson said African Americans are overcharged and underrepresented in the credit card market, and that basic credit-background checks overlook a number of African Americans who may be creditworthy.
"There's definitely a need for banks to focus on urban customers with different lifestyles and different financial needs," Johnson said. "Half of African American households are headed by females. They have unique financial needs that come about by being the only breadwinner and having to deal with the economics of meeting financial obligations without a second paycheck in the house, and having to deal with credit discrimination by not having been in the workforce that long. These are all kinds of things that our bank is designed to address."