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T-Mobile Tries to Disrupt Banking

The company may help bring accounts to millions of unbanked households.

Daniel B. Kline
Daniel B. Kline
Apr 22, 2019 at 1:04PM
Author Bio
Daniel B. Kline is an accomplished writer and editor who has worked for Microsoft on its Finance app and The Boston Globe, where he wrote for the paper and ran the business desk. His latest book, "Worst Ideas Ever," (Skyhorse) can be purchased at bookstores everywhere.

About 8.4 million American households were "unbanked" in 2017, according to a report from the FDIC. That means those households -- 6.5% of the American population -- lack access to a checking or savings account.

A new product from T-Mobile (NASDAQ:TMUS) may help to change that. That's not the stated goal of T-Mobile Money, a new checking account being offered by the wireless carrier (available to anyone, not just its customers). It may, however, be a happy side effect.

The T-Mobile Money app

T-Mobile has released a new banking product. Image source: T-Mobile.

Solving a problem

There are a lot of reasons people don't have a bank account. Some are wary of banks in general and others worry about making small mistakes that lead to overdraft charges. That's a problem T-Mobile is addressing with its new service.

The company pointed out that Americans paid $34 billion in overdraft charges in 2017. That's something the wireless carrier's checking account seeks to eliminate, and that might make it a very appealing product for those who lack a checking account.

T-Mobile Money (a partnership with BankMobile, a division of Customers Bank) offers fee-free accounts with what the company calls no monthly fees and no overdraft fees. In reality, T-Mobile Money allows accounts to go up to $50 in the red without penalty as long as the account holder brings it back to a positive balance within 30 days. To be eligible for that coverage, however, you will need to be a T-Mobile postpaid customer. (T-Mobile did not specify what the fees will be when account holders go more than $50 into the red or do not bring their balance positive by the 30-day limit. It also did not lay out fees for account holders who are not wireless customers.)

Still, while there are limits to T-Mobile's generosity, the account does come with no fees and requires no minimum balance. The checking accounts are FDIC insured up to $250,000 and come with a Mastercard-branded ATM card that can be used free of charge at more than 55,000 in-network Allpoint ATMs worldwide. T-Mobile won't charge at out-of-network ATMs either, but the owners of those machines may charge a fee.

In addition to trying to remove fees and overdraft concerns as a pain point, T-Mobile is also offering interest rates that are generally higher (in many cases a lot higher) than what the big banks are currently offering. Getting the best rates, however, requires the customer to be a T-Mobile postpaid customer, which the company explained in a press release: "T-Mobile postpaid customers can get 4% APY on balances up to $3,000 and 1% APY on every dollar over $3,000 when they sign up with their T-Mobile ID and deposit at least $200 each month. Everyone else scores 1% APY on all balances."

T-Mobile has clearly targeted big banks with this offer. It mentions Bank of America, Wells Fargo, and Chase in its press release. "Traditional banks aren't mobile-first, and they're definitely not customer-first. As more and more people use their smartphones to manage money, we saw an opportunity to address another customer pain point," said CEO John Legere in the release.

A beacon to the unbanked?

Clearly, T-Mobile Money will have the most appeal to T-Mobile postpaid customers. That's not a bad thing for the unbanked, however, because the No. 3 wireless carrier offers low prices and very clear pricing with no overages, and taxes and fees included in the published price.

By offering an easy-to-open checking account that's optimized for mobile use and has limited fees, T-Mobile's new feature may appeal to customers who have otherwise shunned banks. It's not entirely a no-fee proposition, but it does make it so small slip-ups don't result in overdraft charges. That's an attractive proposition even if you hadn't been avoiding banks out of fear of those charges.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.