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Walmart wants to be your new banker.
Today Walmart announced an alternative to traditional debit and checking accounts in partnership with American Express. The Bluebird accounts target consumers who are fed up with increasing fees from traditional bank accounts.
The Bluebird accounts will have no minimum balance requirement and no monthly maintenance, annual or activation fee. Customers can access their money for free using one of 22,000 American Express MoneyPass ATMs, but will be hit with a $2 fee if they are not enrolled in direct deposit.
Walmart says the card was launched in response to consumers who say they are not getting the value they expect from traditional bank accounts with debit cards because of their increasingly higher fees. (Think: Bank of America, JPMorgan Chase, Citi and Wells Fargo’s debit card fee debacle last year.)
It’s true the cost of banking has increased recently. A survey this summer of 50 of the nation’s largest banks finds that basic banking costs jumped in just about every category in 2012 including the minimum amount required to open an account which jumped to $408.76 on average up from $391.41.
Walmart cites a Bretton Woods study that shows consumers now pay an average of $259 per year for a basic checking account and says “that cost is rising due to higher minimum balance requirements and a growing list of fees being added to these services.”
The rise in the cost of traditional banking is one reason some consumers ended their relationship with banks. The FDIC says one in four (28.3%) of all U.S. households conduct some or all of their financial transactions outside of the mainstream banking system. They’re called the “underbanked” or “unbanked”. Their main reason for skipping traditional bank accounts: They believe they do not have enough money to open one or that they do not need or want an account.
Walmart thinks it can help those consumers with its growing financial center offering everything from check cashing, money transfers, bill payments and pre-paid debit cards. It already has another prepaid card in partnership with Green Dot called the Money Card. That card carries a $3 monthly fee.
It’s unclear how much money Walmart makes off its financial offerings. Daniel Eckert, vice president of financial services for Walmart U.S would not detail exactly how it will benefit financially from the new Bluebird accounts.
Bank analyst Dick Bove speculates that it could be receiving a commission from American Express every time cash is loaded on to the card or that it might be sharing in the return on the float.
American Express would not disclose terms of the economic agreement with Walmart.
One thing seems certain and that’s Walmart’s ability to save money on customers who will use these Bluebird accounts versus traditional bank-issued debit cards.
How? When a Bank Of America debit card is swiped to pay for goods at WalMart BofA gets a slice of the amount–about 21 cents per transaction. The same goes for JPM, Citi, Wells and other banks when their customers swipe their debit cards at WalMart and other retailers.
These fees are called interchange fees, or swipe fees. Last year the government put a cap on swipe fees of 21 cents per transaction–still, that was 9 cents higher than what retailers were hoping for.
American Express does not charge interchange fees but it charges so-called merchant discount rates. The company doesn’t break down its merchant discount rates but a spokesperson says “the prepaid discount rate is lower than charge/credit rates.”
Walmart would not discuss how much savings would be realized if more of its customers used Bluebird accounts.
Says Bove, “The Durbin Amendment to the Dodd-Frank Act sets prices on interchange fees. Wal-Mart avoids these price controls because its new product is not called a debit or cash card. It is being handled by American Express as if it were a Traveler’s Check. Presumably, by using this technique, Wall-Mart avoids Durbin and it can receive whatever “commission” American Express chooses to pay on these cards.”
Of course, Walmart isn’t the only player in the prepaid card game. The prepaid card is the fastest growing non-cash method of payment, according to the Federal Reserve. That’s particularly true among the unbanked where the proportion of households that have used a prepaid debit card climbed from 12.2 percent to 17.8 percent in 2011.
However, both the FDIC and Consumer Reports warn of consumers of the dangers of prepaid cards. The FDIC’s Economic Inclusion initiative notes that AFS providers “may lack consumer protections and can be costly for those struggling to make ends meet.” From the FDIC:
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Walmart
The Bluebird accounts will have no minimum balance requirement and no monthly maintenance, annual or activation fee. Customers can access their money for free using one of 22,000 American Express MoneyPass ATMs, but will be hit with a $2 fee if they are not enrolled in direct deposit.
Walmart says the card was launched in response to consumers who say they are not getting the value they expect from traditional bank accounts with debit cards because of their increasingly higher fees. (Think: Bank of America, JPMorgan Chase, Citi and Wells Fargo’s debit card fee debacle last year.)
It’s true the cost of banking has increased recently. A survey this summer of 50 of the nation’s largest banks finds that basic banking costs jumped in just about every category in 2012 including the minimum amount required to open an account which jumped to $408.76 on average up from $391.41.
Walmart cites a Bretton Woods study that shows consumers now pay an average of $259 per year for a basic checking account and says “that cost is rising due to higher minimum balance requirements and a growing list of fees being added to these services.”
The rise in the cost of traditional banking is one reason some consumers ended their relationship with banks. The FDIC says one in four (28.3%) of all U.S. households conduct some or all of their financial transactions outside of the mainstream banking system. They’re called the “underbanked” or “unbanked”. Their main reason for skipping traditional bank accounts: They believe they do not have enough money to open one or that they do not need or want an account.
Walmart thinks it can help those consumers with its growing financial center offering everything from check cashing, money transfers, bill payments and pre-paid debit cards. It already has another prepaid card in partnership with Green Dot called the Money Card. That card carries a $3 monthly fee.
It’s unclear how much money Walmart makes off its financial offerings. Daniel Eckert, vice president of financial services for Walmart U.S would not detail exactly how it will benefit financially from the new Bluebird accounts.
Bank analyst Dick Bove speculates that it could be receiving a commission from American Express every time cash is loaded on to the card or that it might be sharing in the return on the float.
American Express would not disclose terms of the economic agreement with Walmart.
One thing seems certain and that’s Walmart’s ability to save money on customers who will use these Bluebird accounts versus traditional bank-issued debit cards.
How? When a Bank Of America debit card is swiped to pay for goods at WalMart BofA gets a slice of the amount–about 21 cents per transaction. The same goes for JPM, Citi, Wells and other banks when their customers swipe their debit cards at WalMart and other retailers.
These fees are called interchange fees, or swipe fees. Last year the government put a cap on swipe fees of 21 cents per transaction–still, that was 9 cents higher than what retailers were hoping for.
American Express does not charge interchange fees but it charges so-called merchant discount rates. The company doesn’t break down its merchant discount rates but a spokesperson says “the prepaid discount rate is lower than charge/credit rates.”
Walmart would not discuss how much savings would be realized if more of its customers used Bluebird accounts.
Says Bove, “The Durbin Amendment to the Dodd-Frank Act sets prices on interchange fees. Wal-Mart avoids these price controls because its new product is not called a debit or cash card. It is being handled by American Express as if it were a Traveler’s Check. Presumably, by using this technique, Wall-Mart avoids Durbin and it can receive whatever “commission” American Express chooses to pay on these cards.”
Of course, Walmart isn’t the only player in the prepaid card game. The prepaid card is the fastest growing non-cash method of payment, according to the Federal Reserve. That’s particularly true among the unbanked where the proportion of households that have used a prepaid debit card climbed from 12.2 percent to 17.8 percent in 2011.
However, both the FDIC and Consumer Reports warn of consumers of the dangers of prepaid cards. The FDIC’s Economic Inclusion initiative notes that AFS providers “may lack consumer protections and can be costly for those struggling to make ends meet.” From the FDIC:
Participation in the banking system also protects households from theft and reduces their vulnerability to discriminatory or predatory lending practices. In addition, households that use non-bank financial services providers do not receive the full range of consumer protections available through the banking system. Despite these benefits, many people, particularly low-to-moderate income households, do not access mainstream financial products, such as bank accounts and low-cost loans. Other households have access to a bank account, but nevertheless rely on non-bank financial services providers.Meanwhile Consumer Reports issued a report in March saying the prepaid cards can carry plenty of fees and have little protection. From that report:
Prepaid cards can be inferior to debit cards linked to traditional bank accounts in several ways:source: http://www.forbes.com
- Fees can be high, multiple, and confusing
- Not all prepaid cards provide adequate protection against theft of funds usingthe cards or card account numbers
- Promised credit lines or features to build a credit record may be expensive and overstated
- Federal deposit account insurance for prepaid cards applies differently than i does for bank accounts and may be capped at less than the value of all of the prepaid cards issued by a particular card program.
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