Credit Card Marketing to Illegal Immigrants: Stupid Smart or Just Plain Stupid?

Briefly sidelining the “marketing perspective”.. for starters, I’m infuriated by Bank of America’s latest efforts to test-market credit cards to undocumented immigrants [let’s just call it what it is – illegal aliens]. BofA’s main stand here is to provide the local Hispanic population previously unable to establish credit - a reputable, legal alternative. Nice. While I do not agree that BofA’s move is “aiding and abetting” illegal immigrants – it’s certainly fueling our immigration issues by taking advantage of a problem that already is growing exponentially. It’s rampant capitalism at it’s the best [or worst] and with zero regard for the legal niceties.

And it’s no wonder they’re not advertising it either – not really on par with Bank of America’s earlier ‘higher standards’ ad spot which as I understand was recently pulled, to be replaced by "Bank of Opportunity", and, for this population - indeed it would be.

Let’s set aside for a moment the potential backlash it will likely have on existing customers - from a marketing perspective is this a brilliant stride to tap the most rapidly growing and most widely untapped market segment (particularly for this locality) or a major marketing blunder whose financial windfall will show it’s ugly face through increased loss rates, increase charge-off balances and modified fees and interest rate triggers for the remaining card portfolio....? It’s clear that from a business perspective – these are not “illegal aliens” or “lawbreakers” what have you – they are potential customers. But should they be targeted?

Here are some things to consider:
1. Given the unavailability of US credit lenders to this target population – like many high-risk accounts – a segment of this portfolio will pay to whatever end to maintain a line of credit. They need the money and the financial security that comes with having unstable, low wage occupations. Simple lack of availability elsewhere can breed spend and pay loyalty; for all those high-risk sloppy payers the portfolio will likely benefit from an increase in late and over-limit fee revenue not to mention interest income from high interest rates that are manageable [for a while] through low credit lines.

2. By 2010, it's estimated that the hispanic population will represent a 9.2% share of the buyers market with a growth rate far surpassing that of any demographic.

3. Reaching out to such a high-risk, untargeted segment will also likely engage brand loyalty through cross-sell opportunities to the bank's retail branches, cobrand cards and other lending activities: auto and mortgage loan sectors.

From a financial risk perspective…
1. Targeting customers that have had a checking account for 3 months is simply foolish. If Bank of America wants to roll this out nationally, they’re going to have to mitigate that risk by targeting the financially “grounded” segment of this portfolio – a minimum of 12-18 months should be required. Having more stringent criteria will also likely sideline some critic’s complaints by closing the profile gap of it’s intended customers. Illegals that have been here longer and that have grounded themselves in society by establishing mortgage loans and checking accounts with reputable firms (and for a reasonable period of time) will likely be seen as more worthy customers by citizens and legal non citizens, and thus reduce some of the loyalty backlash.

2. Naturally a concern here is when the cardmember fails to make a payment for three consecutive months. If you can’t adequately track cardmembers - who pays when cardmembers default and debt collections balloon – obviously the bank and underwriters will consume those costs but don't think that the rest of the portfolio is safe from feeling the sting. When losses equal or outweigh the risk assumed, you have to force the revenue from elsewhere. Similarly to the way insurance companies raise premiums to cover claims losses – so to will BofA increase fees and beef-up the triggers that generate higher interest rates [so active card members hit them sooner and/or more often]

3. Sub prime accounts are the most high-risk category of lenders in a bank division’s portfolio – for the most part these cardmembers are high-risk at acquisition and represent the lowest income wage earners, the student population and large single-income ethnic families [typically Hispanic]. They have low FICO’s in range under 600 and have credit lines typically under $800. This segment is often either unprofitable or lends itself to a level of profitability that trends, erratically, from the profitable end of the spectrum to the losing lots of money end of the spectrum. Clearly BofA's new target audience resembles key characteristics of the general sub-prime population.

4. Some that I have spoken to point out the fact that these lines come with a $500 credit limit upon a $100 dollar deposit and thus risk is limited. Well, I’ll just say that large financial corporations tend to have multiple business areas whose business strategies are intentionally misaligned. Their functional contribution to the business’ bottom line are through very different means and often contradict one other to cover the grey financial areas resultant to risk migration. The credit risk department at some point [beit 9 months to a year after acquisition] will start granting credit line increases and that’s where the real financial risk starts to rear it’s ugly head.

There's good and bad marketing. There's good and bad execution. And there are plenty of negative case studies of companies crossing the line. Ignoring the voices of your existing customber base can only lead to bad things if their voices get loud enough.

I understand that the fundamental goal of any corporation is to serve it’s shareholders. I just hope this marketing strategy doesn’t backfire; And it very well has the potential to backfire with far greater momentum and ‘bang’ than as was advertised.