23 Jan 2014
First off, congrats to the T-Mobile, Bancorp and Blackhawk teams. I love this product and the unique capabilities of the team that put this together. https://t-mobilemoneyservices.com/
What is the value proposition?
- For the Consumer: Cost, Convenience through a “Banking Lite” product (see Product Pricing Here)
- For T-Mobile: Consumer Loyalty, Increased Switching Cost, NRFF + Debit Interchange, Leverage existing consumer footprint and physical distribution
As I’ve stated previously, the bottom 40% of mass market retail banking accounts are no longer profitable for the large banks. New banking regulations (and regulators) have eliminated fees like NSF as well as Debit interchange for the largest banks. I covered most of this in my blog Future of Retail Banking. The top tier of banks are actively running away from the lower mass segment, and working to drastically reduce the cost of servicing. For example one Top 3 bank CEO I met with was looking to take $1B out of branch costs in next 3 yrs, by actively working to push consumers into mobile/online.
In one of my oldest blogs, MNOs Rule in Emerging Markets, I laid out the basic business case for Telecos to enter banking. Where Banks are burdened by a physical distribution network of branches that only sell banking products, MNOs (and Retailers) have physical distribution which can be leveraged to sell many products. In fact MNOs and Retailers can offer banking services at cost and still create a sustainable business case as banking/payments enhance foot traffic and loyalty. MNOs have a better short term prospect of delivering these services in the US as post paid customers go through a credit check process, thus consumer sighting and credentialing are very similar to what is necessary in opening a bank account (see my MNO KYC and Who do you Trust blogs). Add to this MNOs unique capability to enhance fraud controls in payments, and you have a set of VERY unique business platform that exceeds what a bank can deliver.
My blog 2 years ago Future of Retail: Prepaid? spelled this move out.
…the business case for pre-paid is rather strong, and Banks themselves are assessing if they can make this the new “starter” account (ex Chase Liquid). However Three Party Networks (Discover and Amex) have a significant advantage. From Digital Transactions, March 2012
While the Federal Reserve’s rule implementing the Durbin Amendment has its greatest effect on traditional debit cards, it affects prepaid cards too, especially its provision that banks’ prepaid cards can avoid Durbin price controls only if cardholders can access the funds exclusively through the card itself. That provision thwarted banks’ efforts to make prepaid cards more like demand-deposit accounts and led them to scale back or end bill payments through prepaid card accounts.
But American Express and Discover are not subject to Durbin’s controversial provisions, Daniel and Brown noted. Both companies are so-called “three-party” payment systems that function both as merchant acquirer and card issuer. In contrast, Visa and MasterCard debit and prepaid cards are part of “four-party” systems in which the issuer and acquirer are usually different companies and rely on the Visa and MasterCard networks to route transactions among them. The Durbin Amendment exempts, or “carves out” in industry parlance, three-party networks from its provisions, including interchange regulation.
“There’s no restriction on what AmEx can pay itself” for prepaid card transactions, said Brown. Thus, AmEx and Discover have a new opportunity to grow their prepaid businesses, the attorneys said.
Clearly Discover (DFS) and American Express (Amex) have an opportunity to “Kill” prepaid cards, what are they missing? Physical distribution, service and reach in the mass market. These are the very things that retailers like WalMart can provide, and in fact economically benefit by providing them.
T-Mobile may have started this project as a result of Deutsche Telekom’s WireCard Success. Proving that it is not just emerging markets where Teleco’s can lead. In my view there are now 4 solid models for US MNO/Retailer as Bank (see and MSB or Bank)
1) WalMart/Bluebird through Amex/Serve
2) TMobile/Bancorp (DT/Wirecard) in Visa Product
3) Target .. Obtain the Banking License Directly (see Blog)
4) Prepaid non reloadable
Amex/Serve is the Leader, Bancorp #2
Why? Best example is the Chase Liquid Reloadable. Because of the Durbin constraints on funds access Chase had to pull Bill Pay capabilities from the product. Because Bancorp has under $10B in assets, it is exempt from this provision (?apparently) and can provide bill pay. However if I was an MNO, or Retailer, I would lean in strongly toward Amex (and to a lesser extent to Discover). Bancorp is the best pre-paid issuer to work with and is winning through hustle…
Prediction Big Future for Discover
TMobile may represent a tipping point for retail banking in the US. Now it is not just Walmart/Bluebird… this is a real business model that enhances a core telecom value proposition AND provides a tremendous launch platform for REAL PAYMENT INNOVATION. This together with the launch of MCX will provide the mass market with new products, not all of which are understood by the customer (ex Direct deposit my paycheck to my mobile phone company?).
The advantages of 3 Party networks are beginning to hit the market in REAL products, and I therefore predict that Discover will see a few MAJOR new partnerships, or be acquired in the next 18 months. All of this is somewhat ironic given that the ORIGINAL ISIS consortium was ATT WalMart Barclays and Discover.