There has been a spate of services in personal finance from nonbanks, with T-Mobile being the latest entrant. Retailers, technology companies and start-ups are in the fray as well. I address these trends, segment these entrants and the opportunities for technology vendors in Market Trends: Emerging U.S. Nonbanking Consumer Financial Services Providers, 2013 (subscription required). Some of these new services focus on some aspects of a checking account, but not all, which makes me think if the checking account is really a product bundle where the advantages of bundling are coming under pressure. Would this lead to checking account becoming less dominant for many of our personal finance needs?
The checking account solves many of the needs of customers in personal finance –to keep money safe, to be able to pay others, and the need for a place to receive money on their behalf. It bundles a few things – a uniquely identifiable account, check writing, ATM privileges, interest payment (very less nowadays) and wire transfer to name a few. Product bundling made sense for these services as it makes it easier for the consumer, while offering economies of both scale & scope to the bank. Moreover, the marginal cost of bundling is low.
Now, internet and mobile make new services possible for some of these needs, either in isolation or bundling with others. For instance, the T-Mobile’s service offers an account, debit card, bill payment and a few other features, but it does not offer check writing privileges. Square Cash is a service only to send money to others. Internet and mobile make it easy to reach a larger market, while it reduces fixed costs need for costly branches. Such technologies are available for banks as well, but as incumbents, they have to worry about cannibalization.
Questions about the future of account and branch-based banking were posed while Internet arrived and there were many internet banks, but success has been low. There have also been such services before mobile but they have mostly addressed specialized needs (remittances) or populations not served by checking accounts well (unbanked population). Mobile can offer even more conveniences (e.g. remote check deposit & anytime payment) and we have to see if the new services created will offer a larger value for customers against bundled checking accounts to get a critical mass of paying customers from the users of checking accounts. This does not in any way imply that checking accounts will go away, but I wonder if these unbundling forces are strong enough to unleash many such personal finance solutions that reduce the dominance of services tied to checking account from banks. What do you think?
My colleague Vittorio D’Orazio and I will be speaking to this and other trends in banking in a free webinar in a few days (Feb 18 @ 11AM EST). You can get more information and register here. We hope you can join us.