Wal-Mart, Amex Take on Banks with Low-priced Debit Card

The move will give American Express, best known for its 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, Wal-Mart 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.

It also recently announced a deal with Metlife to offer life insurance in a pilot program in South Carolina and Georgia.

"Wal-Mart 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 or reloadable cards. Bluebird cards will be accepted anywhere that accepts American Express cards, not just at Wal-Mart.

"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, Wal-Mart's vice president of financial services.

Monday's announcement sent shockwaves through parts of the rapidly changing payments industry. Shares of Green Dot, which sells more expensive prepaid cards through Wal-Mart, plunged 20 percent. NetSpend Holdings, another provider of prepaid debit cards, fell 7 percent.

Bluebird also brings a new threat to the relationships banks have with their customers. If the deal with Wal-Mart 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."

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. "Every Wal-Mart cash register is the equivalent of a (bank) teller."

Prepaid cards had been the subject of near-universal scorn by consumer advocates for their often high and complicated fees. But in the past year large banks, such as JPMorgan Chase, Bank of American, Wells Fargo, and U.S. Bancorp, began marketing simpler and low-cost versions of the cards.

The Bluebird accounts, like most prepaid accounts, do not allow for paper check-writing and do not charge overdraft fees. Amex wants to add check-writing next year. Schulman declined to say how that would work without overdraft penalties.

While American Express may be risking its upscale image by partnering with Wal-Mart, having more cards in use may cause more merchants to accept all Amex cards. Amex is third to Visa and MasterCard in the size of its merchant network.

Wal-Mart's efforts to get into the banking business have spanned more than a decade. The Bentonville, Ark.,-based retailer has applied for bank charters several times, but has failed amid opposition from banks, unions and others.

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 and gift cards.

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 Wal-Mart by adding more groceries and payment types.

"But Wal-Mart isn't lying down and taking it quietly," Widlitz said. "The Amex card is another way to appeal to the low-income consumer."

There is more potential as well for the debit card. Those higher up the income ladder, who have checking accounts with banks, use them for budgeting and cybersecurity.

Bluebird will be available next week online and in more than 4,000 Wal-Mart 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.

Wal-Mart and American Express declined to reveal the terms of the deal or detail exactly how they will make money from the partnership, which could become more important as the proliferation of smartphones encourages digital transactions.

"A surprising number of underbanked consumers have a smartphone" they can use with a prepaid account to make purchases, Robertson said.