American Express and Walmart have partnered on an offering that could set the stage for new prepaid cards and checking-account alternatives. After a pilot earlier this year, the two companies decided to launch Bluebird — a prepaid account — nationwide.
Bluebird has no activation fee or monthly fee. Customers can load funds through direct deposit, a linked bank account, cash reload at any Walmart register or mobile check deposit with the upcoming Bluebird mobile app. There is a $2 fee for loading with a debit card at the register.
With direct deposit, customers can access the MoneyPass ATM network for free. MoneyPass operates 22,000 ATMs throughout the country. Without direct deposit, all ATM transactions come with a $2 fee, in addition to charges by ATM operators.
There are no fees for live phone customer service, replacement debit cards, foreign transactions or account inactivity.
In early 2013, the service will expand to include new ways to deposit funds and write checks.
Starting next week, consumers can go online to sign up for a Bluebird account (free) or visit a Walmart store to purchase a Bluebird setup kit for $5.
Regulations lead to more prepaid accounts
“The advent of technology, regulatory changes and evolving consumer demand is changing the financial landscape and American Express is addressing that with products such as Bluebird,” said Dan Schulman, group president of enterprise growth at American Express, in a media conference call.
New financial regulations, introduced last year, reduced the revenue that big banks generated from debit-card transactions. In response, many of the large banks increased monthly fees on checking accounts and raised minimum balance requirements to avoid those fees.
The Bluebird account is intended to be a low-cost alternative to the traditional checking account. Prepaid accounts are not governed by the new regulations that affect checking accounts.
Funds deposited in the Bluebird account are not insured by the FDIC. However, due to regulations governing American Express’s money-transmittal operations, American Express is required to hold assets to cover all deposits in Bluebird accounts, Schulman said.
The online banking unit of American Express does offer an online savings account and certificates of deposit (CDs) but it does not offer a checking account. Last summer, American Express introduced a prepaid card with a low-cost fee structure.
Walmart also has its own prepaid card, called MoneyCard, through a partnership with Green Dot.
Both prepaid card programs will continue to exist along with Bluebird.
The Bluebird account was piloted in select states earlier this year. These pilot accounts are being terminated on Dec. 8, 2012. Current customers can either spend the entire account balance or request refund check for the remaining balance. Customers can then sign up for the new Bluebird account.
Free checking in another form
The Bluebird account represents the latest stage in the evolution of the prepaid market. For the longest time, prepaid accounts were provided by third-party companies to cater to Americans who didn’t have traditional bank accounts. Now, prepaid cards and accounts serve a group of consumers who don’t want to deal with the rising costs of traditional banking.
For instance, Chase, the largest bank in the country, launched its own prepaid card this summer that might as well be a checking account with a fixed $4.95 monthly fee. It comes with most of the features and amenities of a regular checking account — including mobile banking, mobile check deposit and free access to Chase ATMs.
While Chase’s prepaid card is already one of the better prepaid offerings, Bluebird may turn out to be better. Consumers who’ve lost free checking may find Bluebird to be a viable alternative. With no credit checks, no monthly fees and no inactivity fees, anyone can sign up for a Bluebird account and begin conducting most financial transactions that are available through a bank.
Bluebird may even steal the thunder from community banks and credit unions, places that have been praised for offering less-costly checking accounts.
Future prepaid cards and accounts will have to compete with Bluebird. If new prepaid products are able to offer similar features and cost structures, we could see a major shift in the accounts that consumers use for “banking.”