T-Mobile's bid to provide basic checking services to its mobile phone customers is the latest signal that banks are losing the low end of the consumer market.
By offering a reloadable prepaid Visa card, a mobile banking app, and other rudimentary features of a checking account, the carrier has joined a growing list of companies that are enabling consumers to bank without going to a bank. Walmart, Green Dot, American Express, Simple, Plastyc and others are also vying for the business of the nation's 68 million underbanked and unbanked consumers. Many of these customers don't want or need full-service accounts but do need inexpensive ways to deposit checks and pay for things - which a lot of them, particularly the younger set, prefer to do through mobile devices. The nontraditional providers aim to win them over with low fees and mobile apps.
"You've got whole swaths of customers who are choosing as their primary day-to-day bank account now a prepaid card," says Brett King, president of Moven, a startup targeting this demographic. "The core differentiation the banks offer is branches," but retailers like T-Mobile and Walmart have stores, too.
To be clear: T-Mobile insists that it has no ambitions to become a financial institution.
"We're not a bank," says Taylor Collyer, senior director of marketing at T-Mobile. "We don't want to be a bank. Mobile Money is an alternative to a checking account." The carrier is touting the Mobile Money service package, free for subscribers, as a way to avoid the fees charged by check cashers and other financial providers.
The telecom provider is using The Bancorp Bank to provide the package of basic banking services: a prepaid Visa card; a mobile app customers can use to deposit checks, pay bills, transfer funds and reload cards; and access to the AllPoint network of 42,000 ATMs to withdraw cash without surcharges.
T-Mobile is the second telecom carrier in the U.S. to enter this field - Sprint was first with Boost Mobile, which offers bank-like services through mobile devices, though it lacks ATM access.
From 2008 to 2011, banks lost one million checking accounts, according to Aite research.
"The door is open for this market to be served," says Mary Monahan, executive vice president and research director at Javelin Strategy & Research. "This market needs this product, with its low minimum balance, no overdraft fees, and low fees."
The low fees, especially, should be a draw, some say.
"Consumers are looking for an unbundled experience that offers more value," says Bradley Leimer, who leads digital channel strategy for Mechanics Bank in California. "We're likely to see more consumers flock to this type of simplified banking account because it's simply a better experience at a lower price point - certainly better than what the 'underbanked' (a term I despise) get today from check cashers and money center banks."
King sees the market bifurcating. "It's almost as if we're going to create two classes of banking: a basic prepaid or thin [demand deposit] account and a full-service checking account from a bank," he says. "The only real benefit to the full-service account, apart from the overdraft (which comes with a fee), is the concept that when you have a real checking account, then when you need a mortgage, you'll already have the account you need to establish at a bank. But increasingly as financial services become commoditized, that's not a driver of business."
T-Mobile is well positioned in the underbanked segment - a large chunk of the company's customers use prepaid contracts. (In the U.S. in general, there were more than 100 million prepaid phone subscriptions in the second quarter of 2012, about a third of the total number of subscribers.) Prepaid phone customers tend to be younger.
The carrier's entry into financial services "shows how these technologies are dissolving industry boundaries," says Wayne Busch, managing director of Accenture's North America banking practice.
"Digital is becoming a battleground for customer relationships as banks throw their weight behind technology like mobile," he says, citing a survey his firm did last that showed a 50% increase in mobile banking activity in a single year.
Busch predicts more such incursions into banking turf, noting Google's introduction of a prepaid card in November. Another Accenture survey of executives in various industries around the globe found 60% "expect to be making moves of this sort over the next five years."
T-Mobile already provides interest-free loans for smartphones; the company says it has originated billions of dollars in such loans.
Collyer says Mobile Money follows in the spirit of his company's broader campaign of so-called "uncarrier" initiatives, which has included doing away with carrier contracts in recent months.
Such moves are aggressive attempts on T-Mobile's part to compete with Verizon and AT&T, observers say. "They're definitely the underdog," says Monahan. "They're fighting back by offering no-contract services, buying out contracts and now this, to serve customers better."