The discount wireless service provider Boost Mobile said two weeks ago it wanted to meet financial needs of the underbanked with its new mobile banking product OmniMoney. But the many transaction fees the company charges raise questions about whether this gives low-income people a fair deal.
According to Boost Mobile CEO Stephen Stokols, the value-added service dually serves to provide banking services to those who need them and to differentiate Boost's prepaid wireless product from those of competitors like Metro by T-Mobile, which he said is liable to drop their prices at any time to beat or match Boost's.
Boost, owned by the satellite television company Dish Networks, competes in a market of no-contract wireless plans, meaning it can easily lose customers who want to swap their monthly Boost plan for one with Metro or Cricket Mobile, which is AT&T's monthly service. As such, Boost needs ways to reduce churn, and offering additional services — chiefly, financial services — is one way it is looking to do that.
Most of Boost's customers are underbanked, according to Stokols. Additionally, a large segment are immigrants sending money to other countries, especially Mexico. Many also do not have home internet.
"We still have over half our base paying with cash," Stokols said. "They don't have a lot of electronic payment forms. They don't have banking accounts, and for those who do, they're paying a lot of fees because they have small balances."
According to a 2021 report on unbanked and underbanked populations from the Federal Deposit Insurance Corp., 4.5% of U.S. households (approximately 5.9 million in total) were unbanked in 2021, meaning that nobody in the household had a checking or savings account at a bank or credit union.
The FDIC said unbanked rates were higher among lower-income households, Black households and Hispanic households. Among households with $30,000 to $50,000 in annual income, 8.0% of Black households and 8.4% of Hispanic households were unbanked, compared with 1.7% of white households.
Stokols called Boost's customer base "the urban demographic," which he described as "hardworking Americans" who for the most part have annual household incomes below $60,000. He pointed out that most Boost Mobile stores are in urban communities — and many of the company's important customer interactions take place in and around those stores.
"A lot of Boost stores are next to Western Unions, and we'd see them go into Western Union, cash a check, come into Boost, pay, then go back to wire money," Stokols said. "Western Union taxes you when you cash your check, so we thought, why not let customers just cash checks on their phone?"
But for all of Stokols's complaints about banks' fees, Boost charges a slew of fees for such services. For example, OmniMoney's remote check capture service costs $1 per transaction, and the service also charges for cash deposits, cash withdrawals, international remittances (including to Mexico) and ACH transfers. Not using the service will also cost customers; after 12 months of account inactivity, Boost will charge a $2 monthly fee.
Regulators have said the way to reach the underbanked is by limiting these kinds of fees. This summer, Zixta Martinez, the deputy director of the Consumer Financial Protection Bureau, included fee reductions as one of two ways banks could improve low-income households' access to affordable banking products.
"Achieving this most basic access will require, first, offering low monthly fees and further reducing the cost of overdraft and nonsufficient-fund fees — while still providing lower-balance customers flexibility to help manage their expenses — and second, serving consumers in all areas of the country, including in banking deserts in rural areas and within communities of color," Martinez said.
Boost does not require a minimum balance, which is the most often cited reason underbanked people say they do not have an account, according to the 2021 FDIC report. Still, many mobile banking options available to the underbanked exclude all or most of these fees and some banks throw in fee-free overdraft protection on top. Among the 20 largest U.S. banks, Citibank, Capital One and USAA offer fee-free overdraft, according to the CFPB. So, why would a Boost customer choose OmniMoney?
"We're not trying to go out and compete with Chime for everybody," Stokols said in response to a question about Boost's fees. "We're trying to add value to Boost customers and make Boost more unique."
The prepaid phone carrier, which is teaming with a mobile banking startup called Wipit, believes that its large retail footprint in low-income neighborhoods offers an opportunity to challenge check cashers and prepaid card issuers.
One way Stokols said Boost is adding value to the mobile service is by waiving OmniMoney fees for Boost customers. For example, OmniMoney will waive the $3.50 per transaction fee for remittances to Mexico if the sender has an active Boost Mobile account.
Stokols said on Oct. 28, the day after the OmniMoney announcement, that Boost would announce discounts and additional fee waivers "imminently," as in within the coming days. So far, Boost has not made any new announcements about fee waivers. Its website does not have any information about fee waivers for customers.
Boost's OmniMoney could help the company reduce churn, according to Stokols, which is currently a major focus. He said that, while Boost's rates are the best on the prepaid market today, if a competitor like Metro decided to lower its rates, that would leave Boost unable to compete on price and scrambling for a different competitive edge.
OmniMoney is, so far, the most prominent example of how Boost is trying to differentiate with value-added services. Another it launched during the pandemic is a partnership with the telemedicine provider K Health.
The partnership gives customers with a higher-end Boost plan free access to message with a doctor through the K Health app, allowing them to discuss health concerns, get prescriptions or order tests. Customers with lower-end monthly plans can pay $8 a month for access.
"We want to differentiate beyond just voice text and data and actually make the service stickier," Stokols said.
