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Amex's Bluebird Is a No-Fee Checking Account, Not a 'Prepaid Card'

American Express recently announced its new Bluebird "card" account. Feature-wise, it's a checking account with debit card—distributed in part through Walmart. Immediate result: The stock of Green Dot, No. 1 in prepaid cards, fell another 25%, 80% below its high. What's driving Green Dot's reduced valuation is retail channel exposure to much more attractive products backed by big bucks.

Green Dot's initial high valuation resulted from a preferential distribution arrangement with Walmart, which sold lots of cards. Green Dot acquired a bank charter, eliminating the need to issue the cards through an unaffiliated bank. Investors evidently believe (as do I) that this acquisition won't help.

The view from the opposite direction is similarly grim. Checking accounts are regarded by most bankers as the hub consumer relationship. Now Bluebird will compete directly against them, with no monthly fees or minimums. 

If your bank, like so many others, is gung-ho to issue prepaid cards, think again. Focus on how to retain your checking account customers, rather than on emulating Green Dot and Chase by issuing fee-based "prepaid cards" as a new (but already outdated) product.

Prepaid cards sold initially, primarily in retail stores, as impulse, disposable purchases. Where else can you get a MasterCard, Visa or Amex card, pay the cashier and use it without waiting for approval or for the mailman? Not in most bank branches. Prepaid customers, unlike checking account customers or even Facebook members, made scant investment of money or effort binding them to the product they bought.  They're volatile.

As prepaid competition increased, issuers added more transaction capabilities such as bill pay and person-to-person payments to the original prepaid card. "Prepaid" became more like a checking account, under a different name and with different pricing.

Into this came Senator Dick Durbin and the Fed, to bifurcate prepaid evolution. Under Regulation II, which implements Durbin's amendment to Dodd-Frank, if a prepaid card account offers means of payment besides card purchases and ATM withdrawals, then it's a debit card, with purchase interchange limited to around 0.44% — rather than a prepaid card, with unregulated interchange more than twice this.

Prepaid issuers faced a stark choice: promote the card accounts as latter-day checking accounts, accept tiny purchase interchange — and go on charging monthly fees. Or, squeeze the product back into the "prepaid card" coffin, with no-fee cards usable only for store purchases and at ATMs.

Amex was among the few choosing minimal payment capability and customer value while generating more interchange revenue, via a plain vanilla, no-fee product. Western Union was another. (Chase launched a similarly defeatured product, but with a $4.95 monthly fee.) These products, with their limited payment capabilities, were not competitive either with checking accounts or with full-featured prepaid cards.

Maybe Amex should have called the new card account Phoenix, as it rises from the ashes of the old Bluebird. The company says it will mail old Bluebird customers refund checks for their balances—though it told them, "Your bluebird funds do not expire, period…we will always mail you a new Card before the 'valid thru' date passes." Commitment not met. Worse, the disruption of having to stop direct deposit of one's pay is likely far more than a nuisance for underbanked customers who live paycheck to paycheck.

Amex didn't mention this in its recent press release. The truth pops up only at the company's website. The issuer evidently didn't learn from a $100 million settlement with four regulators for failing to meet obligations to customers.

Dragged along Amex's circuitous, slippery path, the "prepaid card" emerges finally from its chrysalis as a full-fledged competitor to retail checking accounts — no need to apply and face possible rejection, no monthly or overdraft fees, immediate and convenient availability, remote deposit capture, convenient face-to-face service and big marketing budgets.  Plus paper checks. 

But no mention of FDIC insurance. Can Amex operate as an uninsured bank under the laws of 50 states, selling checking accounts untouched by bank regulation? I doubt it.

Most likely these customers don't care about FDIC insurance.  Many dislike banks. Reciprocally, banks may dislike this lower-income customer group. 

So, is Bluebird actually good for your bank because "Bluebirds are voracious insect consumers"—and Amex will gulp down unprofitable depositors you don't want? 

If not, open your eyes and see how to keep these customers. Hint: important bank products such as cobranded cards, auto loans and mortgages are successfully distributed by independent retailers. Branches and direct response aren't the only channels through which banks can acquire profitable customers.

Andrew Kahr is a principal in Credit Builders LLC, a financial product development company, and was the founding chief executive of First Deposit, later known as Providian.


(3) Comments



Comments (3)
Horrible, Horrible, Horrible, do not get this card. They have not cst support. I have had the card for 3 weeks and have had to call in 4 times. Each time is over an hour. This current time is going on 3 hour hold/transfers. There is no online/email support. All I need to do is transfer a few bucks to someone's account from time to time. I have two debit cards linked which says it right ways, nope usually takes days. Now the account is frozen for some freaking reason and regular cst service cannot answer any question so you need to speak to the "super secret squirrel" person who keeps you on hold forever. As soon as I get the card unlocked I am transferring all of the money out and going back to taking my happy butt back to the store for a manual money gram. I feel very sorry for those of you who seriously consider these clowns for your primary money card. They are not even FDIC backed. I was only doing a couple of hundred at a time, I have read that people are actually having things like tax returns and direct deposit sent there. DO NOT do that, trust me. Go to a freaking bank people, it's not that bad for that kind of stuff.
Posted by rj1011 | Wednesday, December 05 2012 at 6:05PM ET
This is ridiculous. I see so many articles whining on and on about fees, monthly fees etcetera having to do with PrePaid cards but really, anyone can buy a VANILLA Card with only a ONE TIME $4.95 fee at purchase, register ANY zip code to use for online purchases or store purchases and that's it. No mess, no papers, no tracking, no nothing. I don't even know why anyone would buy a prepaid card from a bank. Go to any Walgreens or RiteAid and buy a Vanilla card and shop anywhere you like in person or online or pay your utility bills with it. Why bother even keeping your money in the bank? People are so brainwashed to think just because they have a paycheck that they have to cash it and leave it at the bank. Why not control yourself, cash your check and take it with you? If you have no self control for purchases, load a Vanilla card max it at 500.00 and use it as you please or not. The expiration dates are into the year 2020!! No monthly fees, no thing. They are accepted everywhere Visa or Mastercard are accepted. WHY pay any bank to use your own money? And, why wait in line to be hassled about your needed 3 pieces of I.D. to withdraw your own cash? People should start taking more control of their finances by keeping control of every dime. You don't need to answer to anyone why you use cash and retailers could give a darn whether you're using a Vanilla card or a bank Visa, as long as the purchase goes thru.
Posted by Chrys | Tuesday, November 20 2012 at 1:24AM ET
The banking industry seems to believe that the "average" consumer cannot judge the "cost" of banking against the fees they charge. I had a checking account which charged me $9 monthly and can get close to $5 in ATM fees. (I get that transactions costs money - but should be less than paying for a fully staffed brick and mortar operation.) That checking account cost me a whopping $500- $600 one year. That's a flat screen television to a lot of families.

This new breed of card appeals to those who have figured out that banks are raiding their pockets on high transaction accounts. I had a dispute regarding an online transaction that started within the 60 day window and ended with me biting $90 because the bank staff wouldn't interfere with a certain online giant until I "tried to work it out with them - some more." I tried - the online giant ticked off the days of that window in obscure phone calls until I couldn't recoup the $90 through the bank. So, I decided to see how long I could go without a checking account. Switched to online bill pay wherever I could and kept an FDIC insured savings account relying on my Paypal debit.

It's been 18 months - I've purchased an occasional money order and pay a fee to cash checks. I was even in a brick and mortar bank where a teller snidely implied to another I was "low income" for not signing up for an account with them. (But, as above, that's another discussion about training staff.) The $300 in transaction fees I've saved still have me laughing up my sleeve at her. Now - I'll be testing Bluebird - for $5 what's there to lose?

Time for the banking industry to wake up - consumers aren't stupid. That FDIC insurance that's touted means more with savings accounts as the balance ebbs and flows in checking. The wealthy need to divide between institutions for insurance to count anyway.

Just goes to show, banks have completely lost touch with consumers while concentrating on getting big fish. But I suspect they'll be more interested in those "little fish" when the downsizing from lost checking accounts begins.
Posted by BLS | Wednesday, November 14 2012 at 1:34PM ET
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