AmEx And Wal-Mart Pursue the ‘Unhappily Banked’ with Their New Bluebird Prepaid Card

In a play for the business of what an American Express Co. executive calls “the unhappily banked,” AmEx and Wal-Mart Stores Inc. on Monday introduced their Bluebird prepaid card for U.S. customers of the world’s largest retailer.

The card not only expands the consumer markets that AmEx, normally associated with credit and charge cards for the carriage trade, is pursuing, but also expands Wal-Mart’s financial-services offerings that have aroused banks’ fears in the past. The card also shows how the Durbin Amendment to 2010’s Dodd-Frank Act created an opportunity in prepaid cards for AmEx and Discover Financial Services.

Bluebird is a practically no-fee card running on AmEx’s Serve platform that offers direct deposit, mobile deposits, and person-to-person and bill payments, and can be used for purchases at AmEx-accepting merchant locations. More features are coming, including the ability to write checks on a Bluebird account beginning in 2013’s first quarter.

“It’s really a very comprehensive service that makes it simple, easy, and secure for consumers who either don’t have access to traditional banking, they feel that they’re underbanked, or importantly, unhappily banked in some way,” Dan Schulman, group president, Enterprise Growth, at AmEx, said at a telephone news conference. “And so for us, this really is a brand-new type of service.”

Wal-Mart’s current lineup of financial services includes the Walmart MoneyCard, a general-purpose reloadable prepaid card managed by Green Dot Corp. “We see this as an expansion of our assortment to help a broader set of Wal-Mart shoppers with an alternative to checking and debit services for less, with better capability, better functionality, and what we would say is better convenience for customers to manage their everyday finances,” said Daniel Eckert, Wal-Mart’s vice president of U.S. financial services.

ATM withdrawals are free for Bluebird cardholders with direct deposit when they use their cards at the 22,000 ATMs in U.S. Bancorp’s surcharge-free MoneyPass network. Otherwise, withdrawals cost $2, as do out-of-network transactions, in addition to possible fees from ATM owners. The card does not charge a host of fees that have attracted criticism from consumer groups, including monthly, activation, deposit, and customer-service fees. The checking service will not provide overdrafts, a lucrative source of fees for banks until a consumer and regulatory backlash reined them in about two years ago.

Bluebird started nearly a year ago as a test for customers frequenting about 180 Wal-Mart stores. According to Schulman and Eckert, test customers not only disliked fee-laden prepaid cards, but they also expressed dissatisfaction with bank accounts while at the same time wanting the latest features today’s technology can provide. “What we found was that they wanted a lot more functionality,” says Schulman.

With that input, AmEx and Wal-Mart beefed up their original test offering. The revised product set to debut next week will have remote deposit capture and sub-accounts that will enable a parent, for example, to provide a card to a child in college. Customers can apply for and manage their cards online, and the program includes a smart-phone app. They also can link other bank accounts to their Bluebird accounts and will be able to take cash to a Wal-Mart cash register and deposit it. Prospective customers can buy a starter kit for immediate use at a Wal-Mart store for $5.

Neither AmEx nor Wal-Mart would discuss how they will make money from Bluebird. But AmEx’s pricing to Wal-Mart won’t be bound by the debit card interchange price controls that have cut about 50% from the debit interchange revenues of big banks that might want to offer the same type of product. That’s because the Federal Reserve Board’s rule implementing the Durbin Amendment says that issuers of Visa- and MasterCard-branded prepaid cards are subject to the controls if the issuer has more than $10 billion in assets and allows access to the underlying funds by means other than the card itself. The Fed further said that so-called three-party networks such as AmEx and Discover, which are both card issuer and merchant acquirer, are not subject to the controls, according to Madeline Aufseeser, a senior analyst at Boston-based Aite Group LLC.

While AmEx might be the beneficiary of a competitive field limited by government regulation, Aufseeser says Bluebird still looks like a strong offering. “I think it is ratcheting up the competition in the prepaid market,” she says. “Big brands, being sold through multiple distribution channels; its price point is very attractive.”

Meanwhile, Green Dot’s investors reacted fearfully to the news and drove the company’s stock down 20% from Friday’s close. Monrovia, Calif.-based Green Dot generated 64% of its operating revenues in 2012’s first six months through its Wal-Mart relationships, according to a company filing. But Eckert said Wal-Mart remains committed to the MoneyCard and its continued growth. “We have a terrific relationship with Green Dot,” he said.

In a statement, Green Dot chief executive Steve Streit said, “We have a great partnership with Wal-Mart and are fully supportive of their focus on offering various alternative financial solutions for different segments of Americans looking for better ways to manage their finances. As Wal-Mart stated on their conference call, the Bluebird product is designed to attract a different customer segment than the customer who is attracted to the Visa and MasterCard-branded Walmart MoneyCard, and we will continue working together to grow our MoneyCard business, which we believe will continue to thrive alongside this new offering.”