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 do not have bank accounts.
The Bluebird, which can be used anywhere that accepts American Express cards, not just at Walmart, is similar to a checking account, but without minimum balance requirements or monthly, annual or overdraft fees. It will accept payroll direct deposit, smartphone deposits, and will make mobile payments and person-to-person transfers.
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The card gives American Express access to Walmart's typically lower-income shoppers, who often do not have bank accounts. It also adds to Walmart's goal of being a one-stop-shop covering consumer needs well beyond merely shopping.
"Bluebird is our solution to help consumers who currently may be poorly served by traditional banking products," said Dan Schulman of American Express. The card is aimed at those who do not have bank accounts or those they are frustrated by the fees their banks charge.
Prepaid card accounts are not subject to as many government regulations as traditional bank checking accounts, rearchers at the Pew Charitable Trusts said last month.
The U.S. Consumer Financial Protection Bureau is looking to impose restrictions. Of particular concern is fees for overdrawing accounts.
The Bluebird accounts do not currently run that risk because they do not allow holders to spend more money than they have on the cards. Schulman declined to say how the company will handle the issue once it allows customers to write checks on the account.
Shares of prepaid card companies Green Dot Corp and NetSpend Holdings Inc fell nearly 20 percent and 6 percent, respectively on Monday, as the entry of bigger players with deeper pockets stands to pressure the business of the companies that pioneered these products.
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 Daruva, 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."
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 offers check-cashing at low rates and other services as it tries to appeal to shoppers without bank accounts.
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.
"But Walmart isn't lying down and taking it quietly," Widlitz said. "The Amex card is another way to appeal to the low-income consumer."
Bluebird will be available next week online and in more than 4,000 Walmart stores in the United States, the companies said. Paper check-writing capabilities, and other features, will be available next year.
Users will be able to put money onto the card through payroll direct deposit, remote check capture with a mobile application, with cash at a Walmart register, or by linking to a bank account.
Cash withdrawals from American Express' ATM machines carry no fees or surcharges for customers enrolled in direct deposit. For those without direct deposit, withdrawals are $2. For out-of-network ATMs, each withdrawal is also $2 and additional operator fees may apply.
Walmart and American Express declined to reveal the terms of their agreement, or detail exactly how they will make money from it, beyond offering value-added services.
Exact customer terms for the new accounts will be posted next week when the new cards become available, an American Express spokeswoman said.
Walmart has said in the past that about 85 percent of transactions at its U.S. stores are paid for with cash.
Green Dot shares slid $2.56 to $10.29 on the New York Stock Exchange, while NetSpend was down 66 cents at $10.09 on the Nasdaq. Wal-Mart's shares gained about 4 cents and American Express shares were up 6 cents.
(Additional reporting by Jed Horowitz; Editing by Maureen Bavdek and Leslie Gevirtz)