Banking trend analysis: Banking services from non-banks on the rise

Non-banks, especially telecommunication companies are offering basic checking account services to America’s under-banked. Last month T-Mobile joined the likes of Walmart, American Express, Verizon and Sprint to offer basic...

Snehal Fulzele 6th February 2014

Non-banks, especially telecommunication companies are offering basic checking account services to America’s under-banked. Last month T-Mobile joined the likes of Walmart, American Express, Verizon and Sprint to offer basic banking services without going to a bank. T-Mobile will offer basic checking services with a prepaid Visa card, a mobile banking application and a host of services such as depositing checks, paying bills, transferring funds as well as access to some 42,000 ATMs across the country without surcharges.



Why this sudden interest about serving the under-banked population?

The fundamental question that needs to be answered is – why is there a sudden interest in this segment that has for long been ignored by most financial services companies? Upon deep-diving into the various reports and statistics, you will know that FDIC reported some 68 million under-banked Americans in 2013.Not only is this number large, but a survey by the Federal Reserve Board also suggests that the under-banked population has adopted mobile banking and payments faster than an average American.  That sounds contradictory in principle – doesn’t it? But a closer look will reveal that one of the reasons could be that this population is unlikely to have dedicated home internet connectivity implying that they have to rely on using their cell-phones to manage money and pay bills. It is also substantiated by the fact that about 91% people from this segment have mobile-phones and about 57% have smart-phones.



So, although it may sound contradictory in principle, but this segment is likely to have more influence on the future of mobile payments and banking. In fact, for T-Mobile this is a strategic move it has a significant market share of the U.S prepaid services – a segment where the customer tends to be young and from low to medium income group. [T-Mobile and Sprint together have over 30% market share of the 100 million strong prepaid services market]

 t-mobile mobile banking


What it means to the banks?

 The big question before banksImplication of this study on the banking industry is a lost opportunity in earning over $75 billion in interest paid by this segment. [In 2011 alone, the under-banked segment paid $78 billion in interest and fees, according to a report by Center for Financial Services Innovation] That is a large and growing revenue opportunity which is being seized by financial technology innovators to help one in four Americans to borrow, save, spend, plan better and in general strengthen the lower middle class.


What can banks do?

Banks can either watch the customers opt for substitutes and alternatives OR you can pull-up their socks and put all those years of expertise, technology sophistication and brand equity into action to remain competent. It means that banks will have to shed the fat, become lean and agile, accelerate product innovation, re-evaluate their risk management strategy, offer services that are convenient to use at competitive fees and above all accept that the new-age consumer is in total control!


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