By slashing the fees of its popular prepaid debit card, Wal-Mart Stores Inc. is making a bid for a wide swath of banks' checking and credit card customers.
The Bentonville, Ark., retailer said Wednesday that it was reducing the up-front, reload, and monthly fees to $3 each for the MoneyCard, which it introduced in 2007.
"We thought we were helping people who were unbanked, and this card is good for them. But it's also good for people who are banked and have low balances and get more than their share of fees, and for those who are using them as an alternative to credit," Jane Thompson, the president of Wal-Mart's financial services business, said in an interview Wednesday.
"We're pro-banking, we want banks to succeed … but I think there's a group with low balances in their bank accounts, living too close" to bouncing checks "that I think will benefit from this."
Roughly 9 million households pay more in overdraft or other fees associated with their checking accounts than they would in prepaid card fees, according to a report released by the Boston consulting firm Aite Group LLC last week. The report found that banks could lose up to $20 billion of annual revenue if those checking account holders shift their money to prepaid debit cards.
Observers agreed that Wal-Mart's repricing, while potentially luring customers from other prepaid providers, will have more of an impact by attracting new cardholders.
"I don't think it's going to automatically drive prices down across the industry overnight, but I do think it's going to help Wal-Mart pick up some significant market share," said Jennifer Tescher, the director of the Center for Financial Services Innovation, a nonprofit affiliate of Chicago's ShoreBank Corp. "Penetration in this country is still tiny. I don't think they're taking it away from anyone, I think they're actually going to bring new consumers into the prepaid market."
Wal-Mart could encourage a migration by some consumers away from traditional checking accounts to prepaid cards, especially as even those with higher incomes attempt to cut costs, Ms. Tescher said. "You could argue that more consumers will begin shopping at Wal-Mart, and different consumers will begin shopping at Wal-Mart, and this kind of offer will be more appealing to them particularly given the black eye that mainstream banks have today."
Ms. Thompson said that Wal-Mart, known for squeezing margins, started rethinking the pricing of its prepaid cards in the fall. "We took a look at the economy and said, what more can we do?"
But she said Wal-Mart looks at the repricing as part of a larger strategy to acquire new customers for the prepaid market.
Reloadable prepaid debit "is a good product for these economic times," she said. "It was good last year, but now … staying in control and keeping your money safe bodes well for this industry."
William H. McCracken, the chief executive of Synergistics Research Corp., provided a more immediate reason for Wal-Mart's price cuts. In a survey that Synergistics conducted in September and October of 1,003 households, almost 20% said they were aware of the MoneyCard, but only 1% had purchased one, because the prices were too high: 83% of respondents called the up-front fee "unreasonable," while even more respondents complained about the reload and monthly fees.
"Wal-Mart I think now is finally trying to reduce those prices, with the hope that they're going to pick up that lost revenue with much higher levels of adoption," Mr. McCracken said.
Steve Streit, the president and CEO of Green Dot Corp., which reloads and supports the MoneyCards for Wal-Mart, said that, given Wal-Mart's scale, its price cuts will boost consumer awareness of the prepaid debit industry.
"This is our radio top 40 hit; this is the time when our industry hits the main stage," he said.
Wal-Mart and its partners would not discuss the specific allocation of the cost cuts, but Ms. Thompson said, "We all stepped up" to share as "margins were reduced."
General Electric Co.'s GE Money Bank issues the MoneyCards, which run on the Visa Inc. network.
Wal-Mart, which gained more than 1 million customers with over $1 billion worth of transactions from the MoneyCard, is now "in the range" of doubling both figures, Ms. Thompson said.
Before Wednesday, the MoneyCard carried a setup fee of $8.94, a reloading fee of $4.64, and a monthly maintenance fee of $4.94.
Mr. Streit said Green Dot already planned to lower the up-front and monthly fees for its own prepaid cards, while adding features, by the summer.
"While the Wal-Mart products will be priced differently, clearly making our products more affordable is a goal," he said. Cutting fees "takes away one new barrier to [customer] acquisition and makes the card more accessible, and educates the consumer as to why this is so much more preferable than the banking alternative."