Back to blog

Mobile Money: Did T-Mobile just pull an Android on banks?

Stijn Schuermans · January 28, 2014

Operators have been trying for ages to launch mobile banking schemes hoping to create new revenue opportunities for themselves. T-Mobile’s latest attempt, dubbed Mobile Money, offers a refreshing new perspective on the space. Drawing on the playbook of innovators like Google and Amazon, T-Mobile uses two strategies that are indeed quite un-carrier-like. Analyst Stijn Schuermans explains.

Did T-Mobile just pull an Android on banks?

Many people that follow what’s going on in mobile might have shrugged their shoulders at T-Mobile’s announcement of the new Mobile Money service. “Un-carrier brings its revolution to personal finance; frees consumers from Outrageous fees!”, titled the press release. An enjoyable bit of drama, but nothing new, right? After all, operators have been trying for ages to launch mobile payment and banking schemes. Remember all the NFC buzz of the last few years? Direct competitor Sprint launched its Mobile Wallet (a very similar service) back in May 2013, leading Forbes to label T-Mobile as “The Late Adopter That Picks Up The Innovation Kudos”.

But there may be more to T-Mobile’s initiative than meets the eye. [tweetable]T-Mobile is using two strategies with Mobile Money that are very un-carrier-like[/tweetable], indeed. Quite refreshing, actually.

Playing in two markets: kill the one, win the other

The press release headline sets the tone: this is a direct attack on banks and other payment service providers, as T-Mobile will not charge fees for the (basic) use of its checking account-like[1] service. (The service enables customers to deposit money, receive wages and make payments either with a mobile phone or a debit card. Here’s a brief description of how it works.)

That T-Mobile targets the so-called unbanked has been widely reported in the media. The unbanked are a large group: in some states like Mississippi they number as high as 15% of the adult population. Presumably the value proposition is also attractive to a whole bunch of people who resent paying for what in an internet world seems a trivial service. If any service has a good chance of becoming widely popular with these audiences, it would be a free one from a major trusted brand like T-Mobile.

The free aspect is important, as it will put pressure on the existing banking players that charge fees, including fellow operator Sprint. It will be difficult for them to forgo those revenues and compete, tipping the scale even more in favor of T-Mobile’s offering. Because T-Mobile is not interested in directly extracting money, it could kill the checkings account market.

If the service doesn’t provide a revenue stream, then how does it benefit T-Mobile? The mobile industry has seen a textbook example of how this might work: Android.

Google provides the Android operating system for free. In fact, Google doesn’t get much revenue at all directly through Android. It captures a mere $3B of the ecosystem’s total value with ads, representing just a small percentage of both the ecosystem and Google’s income statement. However, Android allowed Google to win the online advertising market and defend its core business. No handset maker or operator can push Google’s services off the mobile device now.

In Android’s case, the hypothesis that a free product will upturn the market became a reality. Incumbents like Symbian were forced out of existence, handset making was commoditized to the extent that there are now 255 CES exhibitors whose name starts with “Shenzhen” (thanks ITG’s Gary Cohen for pointing that out) and the total amount of users of smartphone platforms exploded. The big losers were incumbent handset makers like Nokia, Motorola and Blackberry, who saw literally all of their profits disappear.

google-uses-android-to-defend-its-core-business

Similarly, [tweetable]T-Mobile will subsidize banking services business (forgo profits) to boost the core telco business[/tweetable]. By not seeing the bank service as a revenue source, it can use it as a powerful tool to attract and retain customers. You do not have to be a T-Mobile customer to use the service, “but we save the best benefits for our customers,” the company said according to PCMag. “There are other ways you can get your monthly fees waived, but the easiest way is to be a T-Mobile customer.”

If you want to learn more about how Google, Amazon and others have used the same strategy to win in mobile, check out our post on asymmetric business models.

how-t-mobile-competes-with-banks

Leveraging the customer relationship

Which brings us to the second smart strategy from T-Mobile. [tweetable]Finally a carrier that leverages its customer relationship and its retail assets to the fullest[/tweetable]!

In our experience, telcos tend to be very pessimistic about the customer assets they have. On the one side, there is a belief that the customer relationship (including paying money i.e. billing, ironically) is irreversibly being eroded by over-the-top players: Apple, Google, social apps, etc. On the other side, the ubiquitous operator retail stores are seen as costs and as an unwieldy jumble of franchises that are near impossible to consistently manage.

T-Mobile will have none of that depressed talk! [tweetable]T-Mobile’s retail outlets will become your banking branches, its employees your tellers[/tweetable]. Instead of considering retail as an unfortunate but necessary expense, the company leverages its market presence to provide more services to its existing customers, deepening the relationship with them in the process. It does so in a way that pure internet players like Google or Facebook will have a hard time matching. If nothing else, people will now have more reasons to walk into a T-Mobile store, be exposed to its offers and talk to a T-Mobile salesperson.

At VisionMobile, we have long said that the distribution business including physical and digital retail presence holds a huge untapped potential. Read more in our post about the Modular Telco.

How has the telco business been affected by OTT

Mobile Money is also fully consistent with T-Mobile’s branding as a challenger that fights to reduce costs for consumers and with the price-sensitive customer’s it targets. T-Mobile launched a whole range of initiatives in 2013 that put pressure on the pricing of its direct competitors. It focuses on no-contract offerings. As the good folks at PCMag explain (video): “If you look at T-Mobile’s customer base, especially MetroPCS’s customer base, these are a lot of younger people, a lot people who may not have access to mainstream financial services, these are a lot of the unbanked people. T-Mobile is serving this existing customer base with a new, relevant service.

As Forbes mentioned, T-Mobile is a latecomer in the payments market, and it will face many competitors. By leveraging its customer base, retail presence and brand, it is one step ahead of other large contenders, and miles ahead of startups like Simple that aim at disrupting the space with similar free banking services.

Lessons for telcos

The lessons for telcos are clear.

  1. You can use asymmetric business models to boost your own core business by creating huge value in another market. The other market doesn’t have to be a revenue generator: foregoing profits will gain you an insurmountable competitive advantage in that business. The resulting traction can be used to boost the core telco business through customer acquisition and retention. Kudos for T-Mobile for demonstrating that operators can replicate the strategies that internet companies like Google or Amazon have been using to win in mobile.
  2. You do have valuable assets and a customer base that can be leveraged to create new services. Think of the distribution layer in the telco business as a profit center, not just a necessary expense.

I think T-Mobile’s Mobile Money is one of the most refreshing mobile banking initiatives to come out of telcos since the wildly successful M-PESA. What do you think?

– Stijn (@stijnschuermans)

[1]: Mobile Money isn’t technically a checking account, and it certainly doesn’t provide interest-earning services as banks would. From the perspective of what you do with the service, however, it’s close enough not to matter.