--American Express, Wal-Mart Stores selling a new prepaid
card
--Called first of its kind
--Companies looking to add check-writing capabilities next
year
(Updated with new details throughout.)
By Andrew R. Johnson and Karen Talley
In a bid to capture new customers, American Express Co. (AXP)
and Wal-Mart Stores Inc. (WMT) on Monday announced a new prepaid
card, billing it as a cheaper alternative to traditional debit
cards and checking accounts.
Prepaid cards have flooded the shelves of pharmacies,
supermarkets and, more recently, bank branches as alternative
financial-services providers like Green Dot Corp. (GDOT) and
NetSpend Holdings Inc. (NTSP) as well as mainstream lenders like
American Express and J.P. Morgan Chase & Co. (JPM) try to
attract consumers who are put off by increasing checking account
fees.
"This really is a first of its kind out in the marketplace,"
said Dan Schulman, president of American Express' enterprise growth
group, on a conference call.
Many of Wal-Mart's customers are low income, living
paycheck-to-paycheck, and turning to the retailer to cash their
checks on a monthly basis. With the card, called Bluebird, Wal-Mart
is offering a financial service customers can tap into and then do
their shopping.
The product will be available beginning next week online at
www.bluebird.com and in more than 4,000 Wal-Mart stores, the
companies said. Customers will be able to load money on to their
Bluebird accounts using payroll direct deposit, by snapping a
picture of a check with their smartphones using a Bluebird mobile
app and loading cash at a Wal-Mart register. Customers will also be
able to link a checking, savings or debit-card account to their
Bluebird account to transfer funds.
Traditionally sold by alternative financial-services companies
such as Green Dot, which has an existing partnership with Wal-Mart;
NetSpend and Western Union Co. (WU), the market has recently
attracted a slew of mainstream lenders, including American Express,
Chase, U.S. Bancorp (USB) and Regions Financial Corp. (RF), as they
look for additional revenue sources amid fee limits on other
products.
Chase in July said it was rolling out its Liquid prepaid card to
all of its 5,500 branches nationwide.
Many banks have been attracted to the product because unlike
traditional debit cards, they are not subject to new limits on
so-called debit-card swipe fees that banks charge merchants on
every card transaction. The Durbin amendment, a provision of 2010's
Dodd-Frank financial overhaul legislation that ushered in the new
fee caps, included an exemption for most prepaid cards, allowing
issuers of such cards to extract higher fees from merchants.
Prepaid cards also are not subject to the same
consumer-protection requirements that other bank-issued debit cards
are, though many prepaid-card providers, including American
Express, say they proactively offer those protections to customers.
Most prepaid cards also do not come with checking accounts, though
American Express and Wal-Mart executives said they are planning to
add check-writing capabilities and additional deposit options
potentially in the first quarter of next year.
While saying the card is a boon to users, neither company would
disclose the benefits to themselves. But Daniel Eckert, vice
president of financial services for Wal-Mart U.S., did say: "We
serve a large swath of the US population ... and customers may
think of Wal-Mart first for their shopping transactions and their
financial transactions."
The companies first began testing Bluebird late last year, and
have since fine-tuned the product based on customer feedback.
"Bluebird is our solution to help consumers who currently may be
poorly served by traditional banking products," Mr. Schulman said.
"It allows them to easily and safely move, manage, and spend their
money."
Rising bank fees and additional requirements to avoid those fees
has driven customer demand for prepaid cards, experts have said.
But prepaid card companies themselves have also sparked the ire of
consumer advocates for charging what some say are excessive and
hidden fees.
The new U.S. Consumer Financial Protection Bureau earlier this
year said it was evaluating the prepaid-card market to determine if
new rules were needed to make fees more transparent to customers
and ensure the cards are legally subject to the same
fraud-resolution requirements as other bank products.
American Express and Wal-Mart said their product contains the
same fraud protections and product features as other traditional
card products, and carries significantly lower fees than competing
prepaid offerings, which are often marketed to consumers who don't
use banks and may be more likely to use storefront check cashers
and payday lenders.
For example, the Bluebird card doesn't have a monthly
maintenance fee, annual fee or activation fee, while other prepaid
cards can carry fees of $5 or more a month, in addition to
activation fees and charges for talking to a customer-service
representative, checking balances at automated teller machines and
other activities.
It also doesn't charge customers inactivity fees if they stop
using the card after a certain amount of time or transaction fees
for customers who use the card in foreign countries.
Customers can open a Bluebird account online for free, through
the mobile app for free or for $5 by purchasing a set-up kit in
Wal-Mart stores.
The card does come with a $2 ATM withdrawal fee plus separate
fees that may be charged by operators of third-party ATMs. However,
customers can avoid the fees by enrolling in direct deposit and
using ATMs within the MoneyPass Network, which has 22,000 ATMs in
the U.S.
"We've really tried to make this as full of value, features and
functionality and avoid almost all of the fees associated with
things like overdraft" and checking accounts, Mr. Schulman said.
"You can't overdraft on this account. It's not possible to do
that."
Bluebird, which American Express first disclosed in March, is
the latest effort by both companies to attract new customers.
American Express, traditionally a lender of credit cards to
affluent borrowers, last year launched a new prepaid card as part
of an aggressive push to appeal to a wider swath of consumers. It
has since struck deals to sell its new products in stores like
Office Depot (ODP) and Target Corp. (TGT).
Wal-Mart has long been a major player in alternative financial
services. It is among the largest check-cashers in the U.S. and
already offers its own prepaid card in stores and online called the
MoneyCard, which is managed by Green Dot, a third-party vendor that
also offers prepaid cards in stores including Walgreen Co. (WAG)
and CVS Caremark Corp. (CVS) under its own name.
Green Dot's shares have been under pressure this year as it has
faced more competition from traditional lenders encroaching on its
market. The company's share price was cut in half in July after it
reduced its annual earnings forecast, citing increased competition
and the end of exclusive contracts with some of its retail
partners.
Its shares were down 18.5% at $10.47 in recent trading Monday
after American Express and Wal-Mart made their announcement. Shares
of NetSpend, a direct competitor to Green Dot that has struck more
deals with retailers in the last year, were down 7% at $9.99 in
recent trading.
Representatives of Green Dot and NetSpend did not have an
immediate comment about the American Express partnership when
contacted on Monday.
Under its current contract with Wal-Mart, Green Dot is the
exclusive manager of the retailer's MoneyCard program through May
2015, when the current deal expires.
Asked whether Wal-Mart is looking at replacing its relationship
with Green Dot, Mr. Eckert said "absolutely not."
"We have a terrific relationship with Green Dot," Mr. Eckert
said.
American Express' shares were up 0.1% at $58.60 and Wal-Mart's
shares were up 0.1% at $75.22 in recent trading.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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