Embracing the Undocumented

Companies are getting hooked on the buying power of 11 million undocumented immigrants

USA (By Brian Grow, with Adrienne Carter and Roger O. Crockett in Chicago and Geri Smith in Mexico City, BusinessWeek) July 13, 2005 - Inez and Antonio Valenzuela are a marketer's dream. Young, upwardly mobile, and ready to spend on their growing family, the Los Angeles couple in many ways reflects the 42 million Hispanics in the U.S. Age 30 and 29, respectively, with two daughters, Esmeralda, 8, and Maria Luisa, 2 months, the duo puts in long hours, working 4 p.m. to 2 a.m., six days a week, at their bustling street side taco trailer. From a small sidewalk stand less than two years ago, they built the business into a hot destination for hungry commuters. The Valenzuelas (not their real name) bring in revenue well above the U.S. household average of $43,000, making them a solidly middle-class family that any U.S. consumer-products company would love to reach.

But Inez and Antonio aren't your typical American consumers. They're undocumented immigrants who live and work in the U.S. illegally. When the couple, along with Esmeralda, crossed the Mexican border five years ago, they had little money, no jobs, and lacked basic documents such as Social Security numbers. Guided by friends and family, the couple soon discovered how to navigate the increasingly above-ground world of illegal residency. At the local Mexican consulate, the Valenzuelas each signed up for an identification card known as a matrícula consular, for which more than half the applicants are undocumented immigrants, according to the Pew Hispanic center, a Washington think tank. Scores of financial institutions now accept it for bank accounts, credit cards, and car loans. Next, they applied to the Internal Revenue Service for individual tax identification numbers (ITINS), allowing them to pay taxes like any U.S. citizen -- and thereby to eventually get a home mortgage.

Today, companies large and small eagerly cater to the Valenzuelas - regardless of their status. In 2003 they paid $11,000 for a used Ford Motor Co. van plus $70,000 more for a gleaming new 30-foot trailer that now serves as headquarters and kitchen for their restaurant. A local car dealer gave them a loan for the van based only on Antonio's matrícula card and his Mexican driver's license. Verizon Communications Inc. also accepted his matrícula when he signed up for cell-phone service. So did a Wells Fargo & Co. (WFC ) branch in the predominantly Hispanic neighborhood in northeast Los Angeles where they live. Having a bank account allows them to pay bills by check and build up their savings. Their goal: to trade up from a one-bedroom rental to their own home. Eventually, they also hope to expand their business by buying several more trailers. Matrícula holders like the Valenzuelas are "bringing us all the money that has been under the mattress," says Wells Fargo branch manager Steven Contreraz.

Growth engine

For more than two decades, America's illegal aliens have been the target of national attention -- largely for negative reasons. Their growing numbers put downward pressure on U.S. wages and new demands on schools, hospitals, and other public services. Fears of heavier social burdens and higher tax bills have led citizens and local officials to object with renewed vigor to what many perceive as an unwanted invasion from Mexico and other countries, especially to newer destination states such as Alabama, Georgia, North Carolina, and Tennessee (BW, July 4, 2005). Yet all the while, farms, hotels, restaurants, small manufacturers, and other employers have continued to hire the undocumented with little regard to the federal laws intended to stop them.

At the same time, though, the fast-growing undocumented population is coming to be seen as an untapped engine of growth. In the past several years, big U.S. consumer companies -- banks, insurers, mortgage lenders, credit-card outfits, phone carriers, and others -- have decided that a market of 11 million or so potential customers is simply too big to ignore. It may be against the law for the Valenzuelas to be in the U.S. or for an employer to hire them, but there's nothing illegal about selling to them.

So with a wary eye on the heated political debate, business is targeting the Valenzuelas and millions of others who have entered the country illegally. Many companies do so more or less openly. Wells Fargo has half a million matrícula accounts, a majority of them, they acknowledge, opened by unauthorized aliens who lack regular residency or citizenship papers. At the Valenzuelas' branch, fully 80% of accounts are opened by matrícula holders. Blue Cross of California, whose parent, WellPoint Inc. (WLP ), is the nation's largest health insurer, sells health insurance to matrícula holders from company-staffed desks set up inside Mexican and Guatemalan consular offices in the U.S. Sprint Corp. (FON ) accepts such an I.D. for cell-phone contracts.

Other companies, such as Kraft Foods Inc. (KFT ), won't discuss the status of their customers but explicitly target Hispanic newcomers -- more than half of whom are estimated to enter the U.S. illegally, according to a new study by Pew. The consumer-products giant provides workbooks at local English-as-a-second-language classes that include instructions for using coupons for products such as Kraft's Capri Sun drinks in U.S. grocery stores. It also hosts bilingual sweepstake events in Hispanic neighborhoods. "We need to fish where the fish are," says Robert Simpson, Kraft's director of multicultural marketing. He calls part of the Hispanic audience he's trying to reach the "unacculturated," meaning people unfamiliar with American culture and customs.

The corporate Establishment's new hunger for the undocumenteds' business could have far-reaching implications for America's stance on immigration policy, which remains unresolved. Corporations are helping, essentially, to bring a huge chunk of the underground economy into the mainstream. By finding ways to treat illegals like any other consumers, companies are in effect legalizing -- and legitimizing -- millions of people who technically have no right to be in the U.S. It's even happening in mirror image, with some Mexican companies setting up programs to follow customers who move to the U.S. All this knits the U.S. and Mexico closer together, further blurring the border and population distinctions.

The economic impact could be significant. While most analysts peg the number of illegal immigrants at 10 million to 11 million, a recent study by Bear Stearns Asset Management (BSC ) concluded that data on housing permits, school enrollment, and foreign remittances suggests there could be as many as 20 million. Either way, experts agree that the undocumented, a majority of whom are Hispanic, are one of the nation's largest sources of population growth. They add 700,000 new consumers to the economy every year, more even than the 600,000 or so legal immigrants, according to Pew's new study. What's more, 84% of illegals are 18-to-44-year-olds, in their prime spending years, vs. 60% of legal residents. Corporate sales and profits will get a shot in the arm if more of them move out of the cash economy, put their money in banks, and take out credit cards, car loans, and home mortgages. U.S. gross national product could get a boost, too, since consumers with credit can spend more than those limited to cash.

More undocumented immigrants paying income and property taxes would help ease the taxpayer strain for the schools, health care, roads, and other services illegals use. Crime could decline, too. Wells Fargo pioneered acceptance of the matrícula in 2001 after police department in Austin, Tex., asked local financial firms for help in preventing holdups of undocumented immigrants who, lacking I.D.s to open bank accounts, tend to carry wads of cash. "The market has found a way to capture those dollars," says Robert Justich, a senior managing director of Bear Stearns Asset Management and co-author of the recent report The Underground Labor Force Is Rising to the Surface.

The political implications are less clear-cut. Further integration of illegals into the U.S. could help President George W. Bush in his uphill struggle over the past two years to launch a guest worker program. His plan would provide a path to amnesty and full legalization for many unauthorized residents. Companies are taking a position similar to the President's, in effect saying: There's no point in pretending that millions of people aren't here, so let's find ways to deal with them.

Hate e-mail

But corporations' willingness to overlook the status of this lucrative demographic target could further inflame opposition to illegal immigration. Consider the case of New South Federal Savings Bank. In May, the Birmingham (Ala.) company launched a mortgage product called Casa Mia, aimed principally at local Hispanic immigrants, a disproportionately undocumented group whose ranks quadrupled in the state, to 96,000, between 1990 and 2004. The program offers 20-year fixed-rate mortgages to applicants with two years of residency, stable employment, and an ITIN. But within days of the announcement, New South received hostile phone calls and e-mails, some saying they were from Minutemen, the group patrolling the U.S.-Mexico border in Arizona and Texas. "I can think of no more traitorous act than you offering illegal immigrants, who are overunning this country, Casa Mia loans," said an e-mail that a bank official showed BusinessWeek.

Bank officials were even more troubled by a letter from a Washington group called Friends of Immigration Law Enforcement (FILE), which opposes illegal immigration. It threatened to sue the bank under a federal law that prohibits the harboring of illegal aliens and racketeering. By providing mortgage loans that help illegals buy houses, says FILE Executive Director Craig Nelsen, New South is aiding their ability to remain illegally. In June, the bank delayed a broad rollout of Casa Mia pending a legal opinion on potential liability.

Still, such confrontations are relatively rare. Mostly, U.S. companies are finding rapid growth among an underserved population hungry to taste more of America's rich consumer life. Among the first to embrace illegals have been financial companies, eager to tap into the billions in so-called mattress money -- the cash kept at home by illegals and others without bank accounts. When Wells and a half-dozen other banks got the green light from the U.S. Treasury in 2001 to accept the matrícula, the magnitude of the market opportunity wasn't yet recognized, says Shelley Freeman, Wells Fargo's regional president for Los Angeles, who helped develop the program.

It quickly became apparent. Largely via word of mouth in Hispanic neighborhoods, Wells Fargo has opened 525,000 matrícula accounts, which now represent 6% of the bank's total. It opens 800 new accounts a day across the 23 states in which it does business. Wells expanded the program to a Guatemalan matrícula in 2002 and an Argentinian version in 2003. Last October, Colombia launched a pilot matrícula program; El Salvador plans to offer a similar I.D. this fall. Since few immigrants apply for the matrícula if they can legally obtain U.S. identity documents, immigration experts say, it's clear whom companies are going after when they accept it. Overall, 404 banks, thrifts, and credit unions, including Bank of America Corp. (BAC ) and Citigroup (C ), now accept the I.D., according to the Mexican Foreign Ministry. So do 391 city governments and 1,203 police and sheriff departments. Banks will be big winners: Fully 32% of all Hispanics lack bank accounts -- and even more among the illegal population. As much as half of all U.S. retail banking growth is expected to come from new immigrants over the next decade, according to the Federal Deposit Insurance Corp.

The success of the matrícula has encouraged the expansion of other financial products, such as home mortgages, using the ITIN. Created for people such as foreigners with U.S. investments who aren't eligible for a Social Security number but still may owe U.S. income taxes, the agency issued 900,000 ITINs last year and a total of 8 million since 1996. In Chicago, Second Federal Savings has 620 ITIN loans worth $90 million. Expect the stream of new applicants to continue apace, say bank officials, especially now that state housing development agencies in Wisconsin and Illinois have agreed to start buying the loans. Cincinnati-based Fifth Third Bancorp (FITB ), the nation's 13th-largest bank, began accepting the matrícula in 2002 and introduced several ITIN products last fall, including mortgages, home equity lines of credit, and car loans. "We're committed to making the American Dream possible; our obligation is to provide products that allow people to assimilate into the U.S. economy," says Saul R. Boscan, Fifth's director of special initiatives in the Chicago region.

The result is a hot new market in the making. With hundreds of thousands of illegal alien households earning enough to qualify for $95,000 mortgages, according to the National Association of Hispanic Real Estate Professionals, ITIN and conventional mortgages taken out by illegals could be worth as much as $60 billion over the next five years. That's pushing big banks such as JPMorgan Chase & Co. (JPM ) to examine the market and upping pressure on mortgage buyers Fannie Mae (FNM ) and Freddie Mac (FRE ) to create a secondary market for ITIN loans.

The bulk of immigrants, of course, are Mexicans who come from poor villages and who lack skills; their overall average family income is just $27,000 a year, vs. $46,000 for legal residents, according to Pew. But a growing number of the undocumented are upscale, too. Increasingly, upper-middle-class immigrants are entering the U.S. illegally from other Latin American countries as well as from places such as South Korea. Camila and Diego Sandoval (not their real names), walked off a plane from Lima, Peru, four years ago as tourists and never went back to their professional jobs. Diego, 33, got work parking cars but soon went into business for himself designing pools and processing construction permits. Camila, 29, joined him after a stint at a hotel. Together, the two now pull down $120,000 a year.

That's enough to buy a plush black Volkswagen Touareg SUV from a Miami dealership that offered Diego a preapproved auto loan. The couple rent a two-bedroom bungalow three blocks off the beach in a tony north Miami neighborhood. Still, the Sandovals continue to live at least partly in the shadows despite companies' willingness to do business with them. Last year, Camila obtained residency papers by making a marriage of convenience to a friend who is a legal resident. But when Diego tried to become legal the same way, he soon found that his bride had been fictitiously married 11 times. So he filed for a divorce rather than risk an interview with immigration officials.

Some companies worried about a backlash argue that marketing to the undocumented serves the larger public good as well as their own commercial self-interest. Blue Cross of California and a sister unit, Blue Cross & Blue Shield of Georgia, say they're helping to mitigate the health insurance crisis by accepting the Mexican matrícula as a valid I.D. With as many as 2 million of California's estimated 6.2 million uninsured coming from Mexico, Blue Cross believes it can sell basic health insurance to a big block of new customers accustomed to free -- but often lower quality -- health care at home.

So far, Blue Cross says it may have signed up several thousand Mexicans with the matrícula, although it doesn't yet track the number. In May it extended the program to matrícula holders from Guatemala, and it's working on a video-marketing campaign for Guatemalans who speak an ancient Mayan dialect, K'anjobal, so old that it's no longer written. On weekdays at the Guatemalan consulate in Los Angeles, dozens of I.D. applicants who speak mostly Spanish funnel past a sales desk where a Blue Cross agent explains the basics of health insurance in their language. On a recent Tuesday morning, he had two sales leads by 9:30 a.m. "Our view is that these people are already here. They are part of the drain on the health-care system," says Michael Chee, a spokesman for Blue Cross of California. "If we get them to pay, then they are helping alleviate the problem. It's a health-care issue, not an immigration issue."

Other companies feel no need to rationalize. They see opportunity -- and no reason not to grab it. Viscom International Inc., a five-year-old Atlanta company, sells prepaid phone cards to first-generation Mexican immigrants. Its first product is its BEST Mexico card, aimed at those who frequently call family back home. To build customer loyalty, Viscom hands out BEST Mexico cards at festivals popular with Mexican immigrants. And it slaps its bright yellow, red, and green logo on buses and bus stops along roads such as Atlanta's Buford Highway, a main artery for Latinos making their way into the U.S. "The guy that just got here is going to make a lot more calls than the guy who has been here three generations; it doesn't matter if they're legal or not," says Viscom Chief Executive John Wise.

Keeping in touch

Companies such as Sprint feel the same way. The telecom company started accepting the matrícula in 2004 as part of its 14-city Hispanic marketing program. The chief product is a $4-a-month international-calling plan that allows users to phone anywhere in Mexico for 9 cents a minute. Hispanics constitute one of the fastest-growing markets in telecom, and Sprint sees illegals as a key part of it. The undocumented are "an area that is an important consumer base for us. We care about Hispanics in general, of which they are an important part," says Cindy L. Jordan, Sprint's top multicultural marketing manager.

Some smaller companies are building their entire business around undocumented immigrants. One is No Borders Inc., a Venice (Calif.)-based startup run by Raul Hinojosa, an associate professor of political economy at the University of California at Los Angeles. The company offers debit-like cards on which immigrants can store cash, send money home, pay for video teleconferencing calls, and join medical discount plans. Going head-to-head with First Data Corp.'s (FDC ) Western Union Financial Services (FDC ) and other wire transfer services, No Borders plans to open 150 storefronts from Los Angeles to Georgia by September.

It's a market Hinojosa believes is full of potential. Recently at a No Borders outlet in Venice, 26-year-old Félix Castillo (not his real name), an undocumented immigrant from Santa Ana de Valle in Mexico, showed off his 4-month-old son, Lucas, to his grandparents at home via a 52-in. TV and a Webcam. No Borders affiliates have set up outlets in small villages in Mexico to make such connections, at a cost of $25 for 30 minutes. On both sides of the border, the families chatted in their Mexican dialect, Zapoteca. Castillo's parents had never laid eyes on their grandson. "I hadn't seen my mother in four years. Now, I've seen her three times in three months," says Castillo, a food runner at a Venice restaurant who crossed the border seven years ago. Such ventures further intertwine the two countries as well as make money for No Borders.

Big U.S. companies' embrace of undocumenteds as consumers has intensified as it has become clear in recent years that -- no matter how loudly the anti-immigration lobby complains -- the U.S. isn't about to deport illegals en masse. The 1986 law forbidding their employment may still be on the books, but the feds have almost completely given up enforcing it. Instead, since September 11 they have focused on nabbing potential terrorists who might slip into the country illegally, according to a June report by the Government Accountability Office (GAO). Last year, the U.S. Immigration & Customs Enforcement agency brought just three actions against companies for employing illegals, down from 417 in 1999, according to the GAO. And only 2,300 of the country's 5.6 million employers used a computer system in 2004 to check employee Social Security numbers.

Unafraid of penalties, some U.S. industries have become so dependent on illegal labor that a wholesale expulsion would be crippling. Illegal immigrants now comprise fully half of all farm laborers, up from 12% in 1990, according to a recent Labor Dept. survey. They're a quarter of workers in the meat and poultry industry, 24% of dishwashers, and 27% of drywall and ceiling tile installers, according to Pew senior research associate Jeffrey S. Passel. Last year, more than 1 million of the nation's 2.5 million new jobs went to Hispanics, mostly recent immigrants, according to a separate study by Pew. With millions of illegals here to stay, "companies will definitely adapt to working with [them] because they're the fastest-growing marketplace," says Bear Stearns' Justich.

Illegals' importance to the U.S. economy is key to the country's often schizophrenic views toward them. Chronic complaints from taxpayers and workers aside, companies that hire or sell to the undocumented simply have too much at stake to allow a backlash to get out of hand. Even politicians who thunder about illegals have trouble sticking to their convictions.

Such was the case with Republican Congressman Tom Tancredo of Colorado, who says he may run for President in 2008 on a largely anti-immigration platform. One suggestion he made last year: a tax on the remittances foreigners send home as a way to recoup the education and health-care costs Tancredo chalks up to freeloading. But he quickly dropped the idea after an outcry from Denver-based First Data, whose Western Union unit took in $1.1 billion last year from such money transfers. First Data Corp.'s political action committee and its chief executive, Charles T. Fote, each wrote $2,000 checks in support of Tancredo's opponent. Tancredo won reelection but has revised his plan: Rather than tax the individual transaction, he proposes reducing foreign aid by the amount of remittances that countries like Mexico receive from their citizens in the U.S.

The problem for critics of illegal immigration is that corporate efforts to sell to the undocumented weaves them ever more tightly into the fabric of American life. This pragmatic relationship may be anathema to immigration critics. But day by day, the undocumented in the U.S. are finding it ever easier to save and invest their hard-earned dollars.