Last week, T-Mobile rolled out a new banking service called T-Mobile MONEY, I was thinking that this was going to be a mobile money account, operated by a mobile service provider. Remember Isis? The U.S. mobile wallet platform funded and created by AT&T, T-Mobile, and Verizon, not the terrorist group. That’s what they set out to do five years ago. But instead, T-Mobile is launching a low-cost, mostly digital checking account with the help of a partner bank and bashing financial institutions in the process. Like so many other branch-less banking options, T-Mobile is using a high-interest rate, (4% on the first $3,000) to attract attention, customers and “hot” money. Mercator Advisory Group recently published a report on Digital Only Banks and looks at their impact in the U.S.
Market Watch published an article that looks to put into perspective why T-Mobile would introduce such a ho-hum product. It’s less about a desire to one-up traditional financial institutions and more about getting closer to their customers:
So why are so many types of companies offering banking services?
“It makes the relationship stickier,” said Greg McBride, chief financial analyst with personal-finance website Bankrate. “Banks figured out a long time ago that customers are a lot stickier if connect direct deposit, a debit card and online bill payment to a checking account.”
“Sticky” implies that it’s difficult for customers to switch to a rival company. A 2017 study from Bankrate and Money Magazine found that the average U.S. adult had the same primary checking account for 16 years, and more than a quarter of adults had the same account for over 20 years.
For a company like T-Mobile then, converting a wireless subscriber into a checking account holder would then reduce the likelihood that they would switch their cell phone plan to AT&T or Verizon.
“We’ve proven that when we invest in our customers, they are happier and stay with us longer,” a T-Mobile spokesman told MarketWatch.
Bank accounts are rich with information about consumer habits. That one account provides a lens into how much money a customer makes, where they spend that money and whether they’re trying to save that money. “If you’re in any consumer-facing business, he who has the most data wins,” McBride said.
Analysts argued this same logic underpinned Apple’s decision to offer a credit card with Goldman Sachs.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group