Providing Financial Products To Immigrants Is Easier Than You Think

For the 5.9 million U.S. households that were unbanked in 2021—meaning that no one in the household had a checking or savings account at a financial institution (FI)—a bank account may seem like an unattainable privilege. It’s hard to live the “American dream” without a bank account. Immigrants—which represented roughly 26% of the U.S. population in 2021—are particularly susceptible to being underbanked because they likely don’t have identification such as a social security number (SSN) when they first arrive in the U.S. They may also be “credit invisible” if their previously accumulated credit data is not recognized by U.S. credit bureaus. So while some FIs would like to offer financial products to the unbanked, they have to balance that with the inherent risks that come with offering financial products, such as fraud, and their legal obligations to meet customer identification program (CIP) requirements. The Challenge For FIs FIs are in the business of risk just as much as they are in the business of money. With each customer they onboard, an FI has to consider what potential losses they might incur if that customer is fraudulent. They also have to consider the risk of mistakenly facilitating transactions that violate U.S. BSA/AML laws. MORE FROMFORBES ADVISOR Best Travel Insurance Companies ByAmy DaniseEditor Best Covid-19 Travel Insurance Plans ByAmy DaniseEditor An FI can reduce both risks by properly verifying an applicant’s identity. However, since immigrants applying for a bank account, credit card or loan often lack the basic identification documents that most U.S. residents carry, the immigrant may not initially appear to have the necessary data for an FI to fulfill their obligations. What’s Required To Verify Immigrants Verifying immigrants for American financial products requires a few key pieces of information that are easier to obtain than some people may realize. The Bank Secrecy Act (BSA) and Patriot Act require FIs to collect and verify a person’s name, date of birth, address and “identification number” before opening an account. For an American-born applicant, this identification number will be either their taxpayer identification number or their SSN. Immigrants, especially those who are new to the U.S., may lack an SSN, but in these cases, FIs are permitted to use a variety of documents, including an application for an Individual Taxpayer Identification Number (ITIN), a passport number and country of issuance or “any other government-issued document evidencing nationality or residence and bearing a photograph,” according to federal guidelines. While an FI is required to obtain specific pieces of information about an applicant, guidance from FINCEN also states: “a bank need not establish the accuracy of every element of identifying information obtained but must do so for enough information to form a reasonable belief it knows the true identity of the customer.” The Challenge For Immigrants Even though FIs can reasonably verify an immigrant’s identity using ITINs and other documents, many have yet to develop workflows embracing this reality. FIs failing to leverage this opportunity force immigrants, and the potential revenue opportunity they represent, to remain outside the American banking system. In a recent study by Nova Credit which surveyed 300 recent immigrants to the US, nearly half of the respondents (49%) cited a credit card as the product they had the most difficulty getting after arriving in the U.S., and 40% cited a bank account as difficult to get—compared to finding a place to live (38%), setting up phone service (34%) and getting a car (27%). Securing a credit card was among their top priorities for research before moving—only behind finding a place to live. Missing out on providing financial services to the immigrant community means missing out on upwards of 84.8 million customers. There’s no legal reason not to give immigrants and non-U.S. citizens a U.S. bank account. And it doesn’t have to be that much more frictional to onboard immigrants and non-U.S. citizens, either. Forming A Reasonable Belief So how does an FI form a reasonable belief that it knows the true identity of an immigrant or a non-U.S. citizen applicant? First, the FI must obtain the information outlined by FDIC in 31 CFR 1020.220(a)(2)(i). Second, it must develop risk-based procedures that are reasonably designed to verify the identity of the applicant. Remember, FIs must obtain the required CIP information but are not required to verify the accuracy of all of the information obtained. A growing number of FIs utilize alternative verification methods to achieve this goal. Some FIs utilize data from a third-party credit bureau and authenticate it based on the local country’s requirements. Others use document verification tools to verify an applicant’s foreign passport or driver’s license and behavioral biometric data to identify potentially fraudulent applicants. FIs can also utilize progressive onboarding. Progressive onboarding allows applicants who pose a higher risk or may be more difficult to verify (for any reason) to access some products or services, but not all. For example, once an FI has obtained the required CIP information to verify an immigrant applicant’s identity, they can start the immigrant off on a really low credit limit to reduce any potential fraud risk, then slowly ramp up that credit limit as the applicant proves themself to be a genuine customer. Reasons For Optimism Thanks in part to the rise of fintech over the past several years, the number of unbanked U.S. households has steadily been decreasing from 7.1 million U.S. households unbanked in 2019 to 5.9 million unbanked in 2021. Many fintech companies and neobanks have seen success in building and delivering financial products and services to unbanked and underbanked communities. A Win-Win Access to financial services is critical for immigrants to integrate into America. At the same time, strengthening their ability to onboard immigrants and non-U.S. citizens is both an ethical and financial win for FIs. It not only helps to make financial services more inclusive for all, but it opens up a vast untapped market. Doing the right thing while increasing your bottom line? I’d call that a win-win. For more information, visit us at https://www.beverlyhillsimmigrationlaw.com/.