The Washington Post
By: Danielle Douglas
October 8, 2012
Wal-Mart pressed further into the financial business Monday, announcing a new type of prepaid American Express card that the world's biggest retailer said would enable consumers to cut ties with their banks.
The card will act much like debit or credit cards -- except those products are covered by much stricter consumer protection laws. Customers can use the new card to get roadside assistance, bank from their smartphones and, eventually, write checks out of an account linked to the card.
Such prepaid cards have grown in popularity in the wake of the credit crisis that left millions of Americans outside the traditional banking system. Yet consumer advocates warn that issuers of prepaid cards do not always explain the fees or rules associated with their products. Some of those products, the advocates argue, are used to prey on the financially vulnerable.
The U.S. Consumer Financial Protection Bureau is examining whether new rules need to be written for prepaid cards.
Wal-Mart officials said the new card, called Bluebird, will have broad appeal beyond the "non-banked" or "underbanked." They are aiming the card squarely at customers of the banking industry, which has fought vigorously to keep Wal-Mart from obtaining a bank charter.
Company executives said users of the new card will not face a minimum balance requirement, overdraft charges or other fees typically imposed by banks.
They can use the card to withdraw cash from a network of 22,000 ATMs and can use it where American Express cards are accepted, Wal-Mart officials said. The card would carry fraud protections similar to those with traditional credit card products and, officials argued, would be more transparent than other prepaid cards.
Wal-Mart and American Express will not conduct credit checks on applicants.
"There are consumers who are waking up and saying, 'The value that I used to get from my traditional checking account just isn't there given the complex maze of fees I have to navigate,' " Daniel Eckert, vice president of financial services for Wal-Mart U.S., said in an interview. "We've put out a product that offers them an alternative."
Wal-Mart is among several big box retailers, including Target and Office Depot, that are trying to peel off bank customers with prepaid cards.
Banks are also pushing such prepaid products, but many of these institutions cannot match the ubiquitous Wal-Mart's ability to sell credit products to consumers. Over the past decade or so, Wal-Mart has tried on several occasions to obtain a bank charter but has been repeatedly beaten back by the banking industry.
Now, with Bluebird, Wal-Mart customers could conceivably cut banks out of their lives, some analysts said.
"What's interesting about this product is that anybody can manage their money on a day-to-day basis without ever really having to step foot in a bank branch," said Jennifer Teshcer, president and chief executive at the Center for Financial Services Innovation, a think tank. "Banks will continue to play an important role in safeguarding our funds," she added, "but whether they will continue to be the front door for the mass market is what's at stake."
According to a recent government survey, nearly 1 million households exited the banking system from 2009 to 2011. One in four American households, or 28.3 percent, had one bank account or no bank accounts as of last year. A third of these households told researchers that they did not have enough money to open and fund an account.
Consumers have been hit with a flurry of fee hikes as banks try to offset the loss of revenue from a government-imposed cap on debit card transaction fees. The average monthly service fee on checking accounts, for instance, topped $5.48 in September, up 25 percent from the prior year, according to Bankrate.com.
As these fees mount, more consumers are turning to prepaid cards. Consulting firm Mercator Advisory Group estimates that the market for prepaid debit cards may reach $150 billion this year.
Wal-Mart already offers a MoneyCard in a partnership with a company called Green Dot, and officials said that initiative would continue. But on Monday, after Wal-Mart's announcement with American Express, Green Dot's stock plummeted more than 20 percent.