Weekly Update

T-Mobile extends its disruption to a new market

As if T-Mobile weren’t already sufficiently disruptive in its own cellphone carrier space, the company’s new product announcement this past week reverberated through the retail banking sector as well. By launching its Mobile Money hybrid check cashing, prepaid debit and phone-based service, T-Mobile raised the ante in the simultaneous cooperation and competition between retail banks and various payments-related retailers.

Other similar products
T-Mobile of course is not alone in rolling out a new payment product. Banks, mobile providers, and online and traditional retailers are all preparing or have introduced various new payment options. There have also been several initiatives to provide low-cost checking account alternatives for the large number of ‘unbanked’ who rely on expensive check cashing services. These products also have payments capabilities. Typically banks and some sort of electronic payments specialists team up in some capacity to combine a bank charter, ATM network, and the underlying technology. A retailer may also be involved to both provide greater distribution and access and to boost its sales.

Among these initiatives are the following:

  • American Express and Walmart have teamed up for their Bluebird debit-card based checking account alternative.
  • Sprint-owned Boost Mobile rolled out its Mobile Wallet product with a “QuickCheck” service provided by Wipit, in which H&R Block and and Euronet Worldwide are investing partners.
  • Isis is a joint venture between AT&T Mobility, Verizon Wireless and T-Mobile USA that offers a Mobile Wallet product that has been picked up and supported by financial players, including American Express, JPMorgan Chase, and Wells Fargo.
  • JPMorgan Chase’s Liquid Card provides something of a low-cost, but not free ($4.95 per month), alternative to a checking account.

Other entrants in the market include Simple, Green Dot, and Plastyc, dba Banking Up. Paypal and Amazon have also been introducing products from the payments side.

The ‘Unbanked’ or ‘Underbanked’ are only the first target
Most of these products are squarely aimed at ‘the underbanked‘, a substantial number of consumers who due to mismanagement of previous bank accounts, difficulty in meeting balance requirements, or the fee barrier that they face in using traditional checking accounts, operate outside of the traditional banking system. Because this population often ends up paying substantial costs, especially if they fall into payday lending, they are a prime target for disruptive, lower-cost alternatives that new technology is making feasible. Some of these products (e.g., Bluebird, Simple) provide budget management options to aid in savings and cash management.

All of these ease of use, card, phone, payment and cash management features ultimately make sense for a broader base of consumers, and it can be expected that banks and other competitors in this space will move their products up-market over time. The underbanked are merely the ripest market for disruptive alternatives–and therefore also the segment for which banks first need to make defensive moves. (Businesses and high-net-worth individuals already have sophisticated cash management and sweep account services, but integration with consumer payment and phone options is generally only coming with the broader market.)

T-Mobile ups the ante and draws a competitive response
T-Mobile has a wide retail reach,  a large customer base, and a key delivery technology with its smartphones. The company also has a growing reputation for providing low-cost, consumer-friendly options and competing fiercely by disrupting markets. With this roll out, the company is upping the ante in both the cost-competitiveness and reach of the service. (The service will largely be free for its phone customers.) Thus, since its January 22nd announcement, we’ve already seen word reach the Wall Street Journal as to Apple’s plans to combine its iTunes, iPhones and iPad strengths with new payment products and AT&T roll out its iPhone cases that enable NFC payments via Isis.

More products and partnerships to come
With many more products and partnerships in the works, financial service providers will continue to team with companies that provide the technology and, often, networks to provide more innovative and hybridized solutions. T-Mobile’s banking partner is The Bancorp, which provides the banking component of products for many non-bank partner/customers. Retail stores have similarly partnered for store-brand credit cards for decades.

As is often the case with larger players incorporating new technologies or capabilities, it is in effect difficult delineate between what is a partnership and what is a customer relationship. Business relationships, rather than outright acquisitions, are the current means by which non-banks are entering the market and banks are defensively modernizing their services.

This market is still heating up and a long, long ways from settled. But it is a prime example of technology breaking down the barriers of traditional market sectors. As more players come to the table, overlapping alliances are emerging and the outlines of the larger competition are becoming clear. A transformation of the banking sector has begun.