T-Mobile Enters Prepaid to Serve Unbanked Customers, Increase Stickiness (Jan. 23, 2014)
T-Mobile USA Inc. this week became the first major U.S. mobile carrier to enter the GPR prepaid arena with Mobile Money by T-Mobile, a new smartphone application and accompanying Visa prepaid card. The new program, which launches next month, is targeting unbanked and underbanked consumers, with most features offered free to T-Mobile subscribers. Mobile Money by T-Mobile is issued by The Bancorp and leverages a distribution partnership with Blackhawk Network, which serves as the program manager and will market the card in participating Safeway stores. Blackhawk teamed with Usablenet to create the Mobile Money app and MoneyDesktop, which supports its money management tool.
3 Questions for John Barbella, Senior Vice President, The Bancorp
Paybefore: T-Mobile is the first major U.S. telco to expand into everyday financial services. Is being first going to be an advantage? Does Bancorp see the possibility of other domestic carriers following T-Mobile into this arena?
John Barbella: It seems that there is significant opportunity for telcos to offer financial services because consumers are closely tied to their phones. The phone is one constant that most Americans depend on so it makes sense that a mobile carrier would offer financial solutions to their customers. Aside from T-Mobile, TracFone has a service in place. I suspect that the other carriers will watch closely to see how the recently launched T-Mobile and TracFone programs progress.
Paybefore: What is the advantage of including a physical card as part of the offering? Is it essential?
John Barbella: The physical card is a simpler way for cardholders to recognize that this is a tangible account. They will be able to transact with it as they choose. The T-Mobile “Mobile Money” app allows consumers to conduct their financial business as they choose to.
Paybefore: Is there still a lot of growth opportunity to reach new “unbanked” customers in the U.S.? Or is the market getting a bit crowded?
John Barbella: The key question is whether the T-Mobile distribution model will improve the retention rates for underbanked consumers. While the industry has generally been successful in developing new cardholders, retention is critical. Retention rates are improving but not necessarily at the rate that all would desire. Can the pairing with T-Mobile improve retention rates for these cardholders? That will be interesting to see.
Mobile Money by T-Mobile enters a bustling field of providers, including Green Dot, NetSpend and others, targeting the estimated 70 million consumers that lack a primary relationship with a bank. Fees for T-Mobile’s Mobile Money are competitive for non-T-Mobile customers and even lower for T-Mobile customers, which is a key part of the product’s business strategy, observers say.
T-Mobile customers may sign up for the prepaid card online or at T-Mobile stores or purchase it at participating retailers. There is a $4 fee to purchase the card outside of T-Mobile stores, which is refunded to the account within 30 days. Cardholders may reload cash to their accounts for free at T-Mobile stores or purchase reload packs for a fee at other retail outlets. Cardholders also have access to the largest surcharge-free ATM network in the U.S., Allpoint.
T-Mobile’s new financial services push is not unlike what American Express is doing with Bluebird at Walmart and what Walgreens [with Galileo as its program manager] is doing with MasterCard, in their own prepaid card offerings, James Wester, research director, global payments, IDC Financial Insights, tells Paybefore. “This fits with the trend of products aiming for consumers who may not have a strong relationship with a bank or financial institution for some reason but do have a connection to another brand or service,” Wester says.
Contrary to some perceptions, T-Mobile’s move into personal finance in the U.S. doesn’t signal plans to compete directly with banks, but it could inspire other U.S. wireless carriers to follow suit to stay competitive and hold on to customers in a high-churn industry, says John Strand, CEO of Copenhagen-based Strand Consult, which focuses on wireless carriers and emerging financial services. “Carriers are in ferocious competition with each other, dangling huge cash incentives for whole families to switch, and adding a financial services component could help customers stick,” he says.
Wireless carriers have a built-in advantage in recruiting customers, because of direct connections to millions of consumers, plus broad retail reach, but making the leap to financial services, particularly mobile commerce, has been tough for many telcos in Europe. Strand points to Weve, a wireless telco joint venture in the U.K., and numerous other joint ventures in Europe that are in development, noting that most are plagued by delays.
“There’s a perception that telcos are trying to get into the financial services arena, but their business models really are completely different and many of these concepts are struggling to get off the ground,” Strand says. While Vodafone has scored a huge success with its M-Pesa mobile money product in Africa, others have yet to find a clear path to profits in more developed zones, Strand suggests. For example, the U.K.’s O2 wallet launched in 2012 by parent Telefónica recently shut down after 18 months. By contrast, EE, a joint venture of T-Mobile and Orange in the U.K., has found success with its companion prepaid card and Cash on Tap mobile wallet, which this week won a Paybefore Award.