How Crediverso is addressing the ‘cycle of poverty’ affecting the Hispanic community

Crediverso Founder & CEO Carlos Hernandez joins Yahoo Finance this Hispanic heritage month to discuss bridging the gap in banking for the Hispanic community, addressing the disparities in the banking system, and the importance educating the community.

Video Transcript

- Today, in honor of National Hispanic Heritage Month, we are focused on the 62 million Americans of Hispanic or Latino descent. That's the biggest minority bloc in the entire United States and a community that is particularly vulnerable to being what's called unbanked or underbanked. Let's take a look at what those words mean and learn more.

What does it mean to be un or underbanked? Unbanked means you don't use banking institutions to any degree, period. No checking account, no savings account, nothing. On the other hand, underbanked describes those having a checking or savings account, but will also step outside the banking systems for things like check cashing or pawn shop loans. Some people choose to stay unbanked for a number of reasons-- the avoidance of high fees, institutional distrust, but others simply lack the minimum balance requirements to sustain an account.

Being unbanked can take a huge cash toll, costing hundreds of dollars a year or more in extra fees for things like prepaid debit cards or money orders. One recent study said each year, remaining unbanked can cost twice the amount of belonging to a bank. More than seven million US households are unbanked, and more than 24 million households are underbanked. Today, we'll examine this issue from the lens of the ever-growing Hispanic population, who face un and underbanking rates two to three times those of white Americans.

ALEXIS CHRISTOFOROUS: And here to talk about bridging that gap is Carlos Hernandez, founder and CEO of Crediverso, a bilingual financial platform for the Latino and Hispanic community. Carlos, it's great to have you here on the show. First off, I just want to talk about your platform and what you are offering to this community. I know it's different right out of the gate because you're speaking to these folks in their own language. You have people speaking in Spanish. But how else is this different from what else is out there? And also, how can you afford to do it for free?

CARLOS HERNANDEZ: Well, thank you very much for having me, first of all. It's a pleasure to be here. And I love that we are focusing on Hispanic Heritage Month. There is such a big problem across the United States in terms of Hispanic Americans being unbanked and underbanked. This is a huge and growing group in the community of 62 million people right now, expected to be 90 million by about 2030. And they are two to three times more likely to be underbanked and not have access to financial products.

So the platform that we created really was a reflection of that. We looked around the financial landscape. And we realized that across every financial product vertical, whether it is credit cards, debit cards, term loans like mortgages or small business loans or student loans, all the way to insurance products, there is just a huge discrepancy in the adoption rate between the general population in the US and the Hispanic community. So we wanted to solve that.

And there was some very low hanging fruit. As you mentioned, we are the first and only financial product platform on the web to be available fully in English and Spanish. We realized you couldn't even get a credit check in Spanish in this country. We're the first ones to offer that if you can believe that. But beyond language, as you said, we kind of view that as table stakes. It's necessary and it's a reflection of the attention that financial institutions have paid to this community. But beyond that, it's all about the product features.

So this is a portion of the community that utilizes financial products in a very different way from the rest of the country. We have recent immigrants who may not have documentation. They may not have a Social Security number. The access to credit issues are different. The credit histories are different. There is a much higher likelihood of a thin file problem. So the products themselves really need to reflect the use cases and the pain points of this demo.

- Absolutely, and Carlos, getting a little bit into your background, you have multiple degrees from Harvard. Then you went on to work in Wall Street. And pretty quickly, you realized there were few Hispanic people in leadership levels. So you turned down bigger and possibly better opportunities to help bridge that gap. So I'm just curious, why is this so important to you? And though it may not have been your main focus, how have you shown that this space is actually very, very profitable?

CARLOS HERNANDEZ: Well, I think what's happening is that this population, it's not as if they are not using financial products at all, right? They are using financial products to the tune of about $600 billion a year. But the issue is that they are not using them to the extent that they could be. And so that represents a problem on two levels. The first one is that from a business case, it is just a large business opportunity that's being left on the table, to the tune of about a trillion dollars every year that are not being-- financial products that are not being used by this population.

The second side of it is a social mission. So this is just a partial portion of the population that has been underbanked for a long, long time. And that's really what we're here to solve. I think speaking of my background personally, I spent a long time working in Latin America and focusing on Latin America and the Hispanic population of the US across, whether it was time at Harvard, doing a JD MBA program or work that I've done actually down in Latin America and Mexico.

And what I realized, when I started evaluating jobs on Wall Street and banking and private equity, is that the problem really begins with the attention that financial institutions pay to this demographic, right? You can see that there are really only 2% of C-suite leadership represented by the Hispanic community across Fortune 500 companies. And so the problem starts at the top.

And if this demo is not being considered as these companies are making capital allocation decisions and marketing decisions, really, the products are going to reflect that, and it's going to create the set of circumstances that we have today. So at the end of the day, you have Fortune 500 companies only spending about 4% of their marketing budget on reaching what is about 20% of the population. And that's where we saw the problem.

ALEXIS CHRISTOFOROUS: You know, as a Mexican-American, Carlos, how did you and your families', I guess, personal experience inform what you're doing with Crediverso?

CARLOS HERNANDEZ: Well, listen, I grew up in a Mexican-American family in a Mexican-American community here in Los Angeles, which is where I'm calling from today. And we have family and friends who are constantly traveling to either visit other family or work across the border between Mexico and the US. And so it's a problem that I was able to see firsthand.

And there are many examples I've seen of folks who worked really, really hard, very talented small business owners. But they didn't know how to access small business loans, or they were afraid of taking on debt. And they didn't have access to information either in language or in areas where they could access it to understand how to obtain those loans.

I saw many examples of folks who were sending money internationally every day and spending 10%, 20% of their paycheck to go to fees, either foreign exchange fees or fees paying to large money transfer providers. And they had no way to compare those options, no pricing transparency. And we wanted to help fix that.

So this is a problem that I've seen firsthand. It's a problem that I've seen in the community that I grew up in and the community that I engage with every day. And it's one that we really want to use fintech to solve. You know, this is the first time where, as a generation, we were able to use technology to increase access to financial services. And so it's really one of the first times where we can allow access to this demographic in a way that they didn't have it before to these different financial products.

- Yes, and speaking about access, right, the pandemic hit marginalized communities the hardest. And of course, the Hispanic community is no exception to that. So how does sound financial literacy and having access to banks and credit reports actually hopefully level the playing field?

CARLOS HERNANDEZ: It's a great question. And I think it begins with education and information. So if you don't know what a credit score is and why you need one, then you're not going to pursue one, and you're not going to be able to take advantage of all the benefits that it provides you, right? So credit reports have been available for free in English for years and years and years. This is the first time that they've been available in Spanish for this large portion of the country that only speaks that language.

And having a good credit score, having a credit report is necessary for everything from obtaining a mortgage, getting a car loan, even renting an apartment or leasing a cell phone. And those are all things where, you know, as you mentioned a moment ago, it is expensive to be poor in this country. It costs a lot more money to take things like pay overdraft fees and take out payday loans.

And so if you don't have the basic information and understanding of how to access and engage with these financial products and in the way that the rest of the country is doing so, then you are going to be stuck in this cycle of debt and poverty and not have access to the same wealth building opportunities that are made available to the rest of the country.

ALEXIS CHRISTOFOROUS: Carlos, I just want to get back to something I had asked earlier. And that is how your platform is making money. I know that you're offering these services for free. So what is the revenue generator for you?

CARLOS HERNANDEZ: Well, listen, what we realized is that in the same way that all of these 62 million folks in the country don't have access to financial products, you have these financial institutions on the other side who are aware of this community. They are aware of the size of the growth potential, the growth profile, and the fact that they are growing faster from a consumer spending standpoint, from a household income standpoint. I mean, one in every four babies being born today will be born to a Hispanic American family.

So these financial institutions are aware of that, but they are having a phenomenally difficult time acquiring those customers because at the end of the day, they just don't have the representation in house to be able to build and refine products for this demographic that is reflective of the pain points and the use cases of this demo.

So, at the end of the day, we have partnered with these financial institutions. And the ones that are represented on screen here are just a handful of the ones we've partnered with, all of whom have come to us and said, hey, we need access to these customers. We need access to them in a way that helps us refine our products around how they use the products and, ultimately, create more wealth building opportunities for them.

So we work with those financial institutions to help drive them customers and create a data flyback wheel where we can basically give them insights as to how users are interacting with products, where their demands are. We have a portion of our platform that is completely social driven, where users can come onto the main landing page of our platform and ask questions to other users, to be answered by financial experts, to be answered by people, members in the community, influencers, telenovela stars, sports players, soccer players, things like that.

And we really have good insight into how these users are engaging with the financial ecosystem and where the gaps are, where the drop-offs are, where the financial products are just not servicing the needs of this community. And we can help these financial institutions to refine their products.

So we say, hey, users are tired of paying overdraft fees. Users need credit products and debit products that don't require a Social Security number to be able to apply for the product. So we can work with them to refine those products, and ultimately, we create a better product for the community. We create better customers for the financial institutions. And it creates a better economic cycle for everybody.

- And Carlos, closing out here, what's next for you? Are you on the horizon of other languages, right? We're focusing on Hispanic Heritage Month and, obviously, those 62 million Americans, but are there other languages on the horizon?

CARLOS HERNANDEZ: Well, listen, this is a problem that is not unique to the Hispanic segment in the US. There are immigrants from all over the world that live in the United States. That's part of what makes our country so special. And I think these financial issues faced many of those segments. I think as we look to our product roadmap, we have plenty to work on. We have a team of 30 plus that is growing every day. And we will be probably raising more money and continue to pour gas on the fire, as they say.

But our product roadmap really speaks to a few different segments. I think the issue that is present in credit cards, debit cards, loans, things like that, it is present across a lot of different financial product verticals. So we are actively getting into auto insurance, for one. We are actually expanding it to different types of loans. And where there are gaps in the market, we will look at the-- need an opportunity to start to develop those products ourselves.

So I think while there is many to-- much to be done for other immigrant communities within the US, we certainly have our hands full with the Hispanic community here, that those 62 million folks. And there is also a phenomenal opportunity to work on a cross-border basis with the family members and friends that are living abroad.

You know, for example, one of our marquee products is a remittance product, which users can, for the first time, compare options to send money internationally. If we can offer them a way to not only send money internationally at a cheaper and faster rate than the rest of the ways that they were doing it previously, but also then help to bridge the gap of being left out of the financial ecosystem for their family and friends who are living abroad, that's something that we are actively considering ways to accomplish.

ALEXIS CHRISTOFOROUS: All right, Carlos Hernandez, founder of Crediverso, thanks so much for joining us today.