Wal-Mart Stores Inc and American Express Co are teaming up to offer a prepaid debit card called Bluebird to target lower-income shoppers who may not have bank accounts.
The move will give American Express, best known for its affluent cardholders, a 4,000-store gateway to tens of millions of so-called "underbanked" households and the fees they will generate as technology moves more of their transactions from cash to digital payments.
At the same time, Walmart will get to extend its mantra of "every day low prices" to yet another sphere and come closer to achieving its years-long goal of offering banking services.
It also recently announced a deal with Metlife Inc to offer life insurance in a pilot program in South Carolina and Georgia.
"Walmart is doing everything it can to be a financial services provider to the largest number of Americans possible," said David Robertson, publisher of The Nilson Report, which tracks the payments industry.
The Bluebird, which will be available next week, offers something similar to a checking account, but without minimum balance requirements or monthly or annual fees. Adding money is free, unlike other cards, known as prepaid debit or reloadable cards. Bluebird cards will be accepted anywhere that accepts American Express cards, not just at Walmart.
"This is incredibly cheap. This is one of the best, if not the best, options for prepaid cards," said Anisha Sekar, vice president for credit and debit products at NerdWallet.com, which compares prices for financial products.
The average American pays about $200 a year in ATM fees, overdraft fees and other bank fees, said Daniel Eckert, Walmart's vice president of financial services.
Monday's announcement sent shockwaves through parts of the rapidly changing payments industry. Shares of Green Dot Corp, which sells more expensive prepaid cards through Walmart, plunged 20 percent. NetSpend Holdings, another provider of prepaid debit cards, fell 7 percent.
Bluebird also brings a new threat to the relationships banks have with their customers. If the deal with Walmart works for American Express, the financial services company could take market share from other banks.
"This is one salvo," said Toos Daruvala, a consultant in McKinsey & Co.'s North America banking and securities practice. "All banks need to try to figure out who is friend, who is foe, who they are going to partner with and who they are going to compete against in the world of retailers, telecoms and technology players."
CASHIERS AS BANK TELLERS
Bluebird accounts will accept payroll direct deposits and smartphone deposits of photographed checks. They will also allow holders to make mobile payments and person-to-person transfers.
"We reimagined how banking might be done in the 21st century," said Dan Schulman, American Express's group president of Enterprise Growth. "Every Walmart cash register is the equivalent of a (bank) teller."
Prepaid cards had been the subject of near-universal scorn by consumer advocates for their often high and complicated fees. But in the past year large banks, such as JPMorgan Chase & Co, Bank of American Corp, Wells Fargo & Co and U.S. Bancorp, began marketing simpler and low-cost versions of the cards.
The Bluebird accounts, like most prepaid accounts, do not allow for paper check-writing and do not charge overdraft fees. Amex wants to add check-writing next year. Schulman declined to say how that would work without overdraft penalties.
While American Express may be risking its upscale image by partnering with Walmart, having more cards in use may cause more merchants to accept all Amex cards. Amex is third to Visa Inc and MasterCard Inc in the size of its merchant network.
Walmart's efforts to get into the banking business have spanned more than a decade. The Bentonville, Arkansas-based retailer has applied for bank charters several times, but has failed amid opposition from banks, unions and others.
ALL THE WAY TO THE BANK
Wal-Mart, the world's largest retailer, has long tried to serve its lower-income shoppers who have little or no access to credit. It has offered various financial services to shoppers for more than a decade, including check-cashing, domestic and international money transmission, walk-in bill payment and gift cards.
SW Retail Advisors founder Stacey Widlitz noted that dollar stores - which include Family Dollar and Dollar Tree - have been trying to wrestle market share from Walmart by adding more groceries and payment types.
Source: Argentine Beef Packers S.A.
Back to News Headlines