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 may not have bank accounts.
The move will give American Express, best known for its more affluent cardholders, a 4,000-store gateway to tens of millions of so-called "underbanked" households and the fees they will generate as technology moves more of their transactions from cash to digital payments.
At the same time, Walmart will get to extend its mantra of "every day low prices" to yet another sphere and come closer to achieving its years-long goal of offering banking services.
"Walmart is doing everything it can to be a financial services provider to the largest number of Americans possible," said David Robertson, publisher of The Nilson Report, which tracks the payments industry.
The Bluebird, which will be available next week, offers something similar to a checking account, but without minimum balance requirements or monthly or annual fees. Adding money is free, unlike other cards, known as prepaid debit cards or reloadable cards. Bluebird cards will be accepted anywhere that accepts American Express cards, not just at Walmart.
"This is incredibly cheap. This is one of the best, if not the best, options for prepaid cards, said Anisha Sekar, vice president for credit and debit products at NerdWallet.com, which compares prices for financial products.
The average American pays about $200 a year in ATM fees, overdraft fees and other bank fees, said Daniel Eckert, Walmart's vice president of financial services.
The elimination of those fees should free up more money to spend elsewhere.
The announcement sent shockwaves through parts of the rapidly changing payments industry. Shares of Green Dot Corp, which currently sells more expensive prepaid cards through Walmart, dropped 20 percent, and NetSpend Holdings, another provider of prepaid debit cards fell 3 percent, as bigger, more powerful companies move in on their business.
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 Daruvala, 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."
CASHIERS AS BANK TELLERS
Bluebird accounts will accept payroll direct deposits and smartphone deposits of photographed checks. They will also allow holders to make mobile payments and person-to-person transfers.
"We reimagined how banking might be done in the 21st century," said Dan Schulman, American Express's group president of Enterprise Growth. "Where every Walmart cash register is the equivalent of a (bank) teller."
Prepaid cards have been the subject of near-universal scorn by consumer advocates for their often high and complicated fees until the past year when large banks, such as JPMorgan Chase & Co began marketing simple and low-cost versions, partly to cut their own costs of dealing with people with less money.
Walmart's efforts to get into the banking business have spanned more than a decade. The Bentonville, Arkansas-based retailer has applied for bank charters several times, but has failed amid opposition from banks, unions and others.
Prepaid card accounts are not subject to as many government regulations as traditional bank checking accounts, researchers 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, expected next year.
ALL THE WAY TO THE BANK
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 has offered various financial services to shoppers for more than a decade, including check-cashing, domestic and international money transmission, walk-in bill payment, gift cards, and general prepaid card services.
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.
Cash withdrawals from the 22,000 ATMs in the MoneyPass network 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 $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.
Green Dot shares plunged $2.60 to close at $10.25 on the New York Stock Exchange, while NetSpend ended the day down 79 cents to $9.96 on the Nasdaq. Wal-Mart's shares closed up 12 cents and American Express closed up 26 cents.
(This story was fixed to correct spelling of Daruvala in paragraph 11)
(Additional reporting by Jed Horowitz; Editing by Maureen Bavdek and Leslie Gevirtz)