--American Express, Wal-Mart Stores selling a new prepaidcard
--Called first of its kind
--Companies looking to add check-writing capabilities nextyear
(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 prepaidcard, billing it as a cheaper alternative to traditional debitcards and checking accounts.
Prepaid cards have flooded the shelves of pharmacies,supermarkets and, more recently, bank branches as alternativefinancial-services providers like Green Dot Corp. (GDOT) andNetSpend Holdings Inc. (NTSP) as well as mainstream lenders likeAmerican Express and J.P. Morgan Chase & Co. (JPM) try toattract consumers who are put off by increasing checking accountfees.
"This really is a first of its kind out in the marketplace,"said Dan Schulman, president of American Express' enterprise growthgroup, on a conference call.
Many of Wal-Mart's customers are low income, livingpaycheck-to-paycheck, and turning to the retailer to cash theirchecks on a monthly basis. With the card, called Bluebird, Wal-Martis offering a financial service customers can tap into and then dotheir shopping.
The product will be available beginning next week online atwww.bluebird.com and in more than 4,000 Wal-Mart stores, thecompanies said. Customers will be able to load money on to theirBluebird accounts using payroll direct deposit, by snapping apicture of a check with their smartphones using a Bluebird mobileapp and loading cash at a Wal-Mart register. Customers will also beable to link a checking, savings or debit-card account to theirBluebird account to transfer funds.
Traditionally sold by alternative financial-services companiessuch as Green Dot, which has an existing partnership with Wal-Mart;NetSpend and Western Union Co. (WU), the market has recentlyattracted a slew of mainstream lenders, including American Express,Chase, U.S. Bancorp (USB) and Regions Financial Corp. (RF), as theylook for additional revenue sources amid fee limits on otherproducts.
Chase in July said it was rolling out its Liquid prepaid card toall of its 5,500 branches nationwide.
Many banks have been attracted to the product because unliketraditional debit cards, they are not subject to new limits onso-called debit-card swipe fees that banks charge merchants onevery card transaction. The Durbin amendment, a provision of 2010'sDodd-Frank financial overhaul legislation that ushered in the newfee caps, included an exemption for most prepaid cards, allowingissuers of such cards to extract higher fees from merchants.
Prepaid cards also are not subject to the sameconsumer-protection requirements that other bank-issued debit cardsare, though many prepaid-card providers, including AmericanExpress, say they proactively offer those protections to customers.Most prepaid cards also do not come with checking accounts, thoughAmerican Express and Wal-Mart executives said they are planning toadd check-writing capabilities and additional deposit optionspotentially in the first quarter of next year.
While saying the card is a boon to users, neither company woulddisclose the benefits to themselves. But Daniel Eckert, vicepresident of financial services for Wal-Mart U.S., did say: "Weserve a large swath of the US population ... and customers maythink of Wal-Mart first for their shopping transactions and theirfinancial transactions."
The companies first began testing Bluebird late last year, andhave since fine-tuned the product based on customer feedback.
"Bluebird is our solution to help consumers who currently may bepoorly served by traditional banking products," Mr. Schulman said."It allows them to easily and safely move, manage, and spend theirmoney."
Rising bank fees and additional requirements to avoid those feeshas driven customer demand for prepaid cards, experts have said.But prepaid card companies themselves have also sparked the ire ofconsumer advocates for charging what some say are excessive andhidden fees.
The new U.S. Consumer Financial Protection Bureau earlier thisyear said it was evaluating the prepaid-card market to determine ifnew rules were needed to make fees more transparent to customersand ensure the cards are legally subject to the samefraud-resolution requirements as other bank products.
American Express and Wal-Mart said their product contains thesame fraud protections and product features as other traditionalcard products, and carries significantly lower fees than competingprepaid offerings, which are often marketed to consumers who don'tuse banks and may be more likely to use storefront check cashersand payday lenders.
For example, the Bluebird card doesn't have a monthlymaintenance fee, annual fee or activation fee, while other prepaidcards can carry fees of $5 or more a month, in addition toactivation fees and charges for talking to a customer-servicerepresentative, checking balances at automated teller machines andother activities.
It also doesn't charge customers inactivity fees if they stopusing the card after a certain amount of time or transaction feesfor customers who use the card in foreign countries.
Customers can open a Bluebird account online for free, throughthe mobile app for free or for $5 by purchasing a set-up kit inWal-Mart stores.
The card does come with a $2 ATM withdrawal fee plus separatefees that may be charged by operators of third-party ATMs. However,customers can avoid the fees by enrolling in direct deposit andusing ATMs within the MoneyPass Network, which has 22,000 ATMs inthe U.S.
"We've really tried to make this as full of value, features andfunctionality and avoid almost all of the fees associated withthings like overdraft" and checking accounts, Mr. Schulman said."You can't overdraft on this account. It's not possible to dothat."
Bluebird, which American Express first disclosed in March, isthe latest effort by both companies to attract new customers.American Express, traditionally a lender of credit cards toaffluent borrowers, last year launched a new prepaid card as partof an aggressive push to appeal to a wider swath of consumers. Ithas since struck deals to sell its new products in stores likeOffice Depot (ODP) and Target Corp. (TGT).
Wal-Mart has long been a major player in alternative financialservices. It is among the largest check-cashers in the U.S. andalready offers its own prepaid card in stores and online called theMoneyCard, which is managed by Green Dot, a third-party vendor thatalso 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 hasfaced more competition from traditional lenders encroaching on itsmarket. The company's share price was cut in half in July after itreduced its annual earnings forecast, citing increased competitionand the end of exclusive contracts with some of its retailpartners.
Its shares were down 18.5% at $10.47 in recent trading Mondayafter American Express and Wal-Mart made their announcement. Sharesof NetSpend, a direct competitor to Green Dot that has struck moredeals with retailers in the last year, were down 7% at $9.99 inrecent trading.
Representatives of Green Dot and NetSpend did not have animmediate comment about the American Express partnership whencontacted on Monday.
Under its current contract with Wal-Mart, Green Dot is theexclusive manager of the retailer's MoneyCard program through May2015, when the current deal expires.
Asked whether Wal-Mart is looking at replacing its relationshipwith Green Dot, Mr. Eckert said "absolutely not."
"We have a terrific relationship with Green Dot," Mr. Eckertsaid.
American Express' shares were up 0.1% at $58.60 and Wal-Mart'sshares 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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