--American Express, Wal-Mart Stores selling a new prepaid
card
--Called first of its kind
--Move solidifies Wal-Mart's position in the financial-services
industry
(Updated with details about Wal-Mart's financial-services
history in paragraphs 10 and 11 and comments from the CEOs of Green
Dot and NetSpend in paragraphs 26-29.)
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.
The move further solidifies Wal-Mart's position in the
financial-services industry. The retailer had tried to obtain a
banking charter several years ago but gave up that effort in 2007
after facing intense opposition from the banking industry, which
has often been critical of the company's efforts to offer financial
services.
However, Wal-Mart has built itself to be a major player in
alternative financial products. 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.
"We serve a large swath of the U.S. population...and customers
may think of Wal-Mart first for their shopping transactions and
their financial transactions," Daniel Eckert, vice president of
financial services for Wal-Mart U.S. said.
The companies first began testing Bluebird late last year, and
have 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.
Mr. Schulman said the company has tried to make the card "full
of value, features and functionality and avoid almost all of the
fees associated with things like overdraft" and checking accounts.
"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 such as
Office Depot (ODP) and Target Corp. (TGT).
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 19.3%, at $10.36 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 new
deals with retailers in the last year, were down 7%, at $10 in
recent trading.
In a statement, Green Dot Chief Executive Officer Steve Streit
said Green Dot is supportive of Wal-Mart's focus on offering
various alternative financial products "for different segments of
Americans."
"We will continue working together to grow our MoneyCard
business, which we believe will continue to thrive alongside this
new offering," Mr. Streit said.
Dan Henry, CEO of NetSpend, said focus by American Express and
other lenders on the prepaid-card market is good for the
industry.
"If you see Chase and American Express...spending money and
building awareness of prepaid, that's good for the entire industry
and that's good for the consumer," said Mr. Henry, whose company
sells its card through retailers including 7-Eleven as well as
check-cashing stores and payday lenders.
Under its current contract with Wal-Mart, Green Dot is the
exclusive manager of the retailer's MoneyCard program through May
2015, when the 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 0.3% at $58.75 and Wal-Mart's
shares were up 0.1% at $75.26 in recent trading.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com and
Karen Talley at karen.talley@dowjones.com.
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