Walmart and American Express did more than just announce a new product this week. It appears they've fired a shot across the bow of the banking industry.
The retailer and financial services companies announced Bluebird, a new prepaid card with very few fees. It's aimed at consumers who have dropped out of banking, or are getting fed up with bank fees.
Bluebird works like a debit card. You load it with your own money and can use it online, at ATMs and anywhere American Express Cards are accepted. There are no overdraft fees, monthly service charges or activation fee.
Competitors swoon
Wall Street took note immediately. Shares of NetSpend Holdings Inc. and Green Dot Corp., two of the largest prepaid card companies, plunged soon after the announcement.
Wall Street banking industry analyst Dick Bove said American Express is charging Walmart less than what it charges banks like JP Morgan Chase, Bank of America and Wells Fargo in swipe fees.
"The Durbin Amendment sets prices on interchange fees," Bove wrote in a note. "Wal-Mart avoids these price controls because its new product is not called a debit or cash card. It is being handled by American Express as if it were a Traveler's Check. Presumably, by using this technique, WalMart avoids Durbin and it can receive whatever 'commission' American Express chooses to pay on these cards."
How good for consumers is it?
Suddenly, it seems, the banks are on the defensive. Does that mean Bluebird gives consumers a real alternative to banks?
"Overall, the Bluebird Prepaid Card seems like a great addition to the growing prepaid card market," said Odysseas Papadimitriou, a former Capital One senior director and current CEO of the credit card comparison website CardHub.com. "Not only is it one of the few cards out there that's even suitable for each of the main ways consumers use prepaid cards, but it's also one of the least expensive options for each application."
Papadimitriou said he based his conclusions on his analysis of what Bluebird offers and what it costs. He found it can be free to use as a replacement checking account, since it does not charge fees for activation, monthly or annual maintenance, or ATM withdrawals at 22,000 MoneyPass ATMs nationwide if you are enrolled in direct deposit.
The fact that it also offers free online bill pay means it is on par with the GreenDot Gold Prepaid Card, which was Card Hub's selection for the Best Prepaid Card to Use as a Replacement Checking Account in 2012.
Just two negatives
Papadimitriou said he really only found two negatives: If you are a heavy ATM user and don't use direct deposit, those ATM fees will add up. Second, you can't automatically deposit federal benefits, such as Social Security or VA benefits, to the card.
"The fact that its only major fee is a $2 charge for all but your first monthly ATM withdrawal -- which is waived for those enrolled in direct deposit -- means that it will be among the least expensive prepaid cards, depending on how exactly you use it," Papadimitriou said. "The ability to load funds via check by taking a picture through Amex's mobile application also makes it one of the few cards suitable to be an alternative check cashing tool."
Which all means banks should probably be worried. Walmart, after all, has repeatedly identified market segments where consumers were being poorly served and eventually owned the market. Selling a wide list of generic prescription drugs for $4 comes to mind.
In 2006 Walmart seriously considered seeking a charter for its own bank, with branches in all its stores, before finally giving up on the idea. With Bluebird, it may have revived it.
How they voted
Yes
Yes