Walmart's latest bid for the underbanked: A virtual prepaid 'vault'

Issuers of prepaid cards often say their products are a good tool for budgeting, but it's rarer to hear merchants market their own branded prepaid cards this way.

Walmart is retooling its prepaid strategy to focus on saving in an effort to improve the financial habits of its customers.

"We're using our size and scale to take on issues impacting our customers," said Daniel Eckert, senior vice president of services for Walmart U.S. during a press conference to publicly unveil Prize Savings, a prize-linked savings incentive program available to Walmart MoneyCard holders.

Eckert made reference to a "savings crisis," citing Federal Reserve stats saying nearly half of all U.S. families can't cover a $400 emergency with their savings. "Ninety percent of Americans are within 15 miles of a Walmart; this is a meaningful way to help Americans contribute to their rainy day fund."

Lula Marques/Bloomberg

To participate, consumers log into the Walmart MoneyCard app or website to transfer funds from their Walmart MoneyCard balance into a linked MoneyCard Vault, which stores savings. Each dollar equals one entry in that month's national drawing, and the sweepstakes awards 500 cash prizes each month, averaging $25 each but including a $1,000 grand prize. The cash prizes are deposited into the winner's MoneyCard account.

The program was announced on Thursday, but has been active since August. The retailer did not say exactly how many people have participated in the sweepstakes, but reported a tangible increase in savings. 1,500 people have won prizes thus far. Since the launch, MoneyCard Vault users are saving an average of 35% more.

"For many customers, it's the first time they have been able to take advantage of an FDIC-insured account," said Steve Streit, chairman and CEO of Green Dot, which issues Walmart's prepaid cards, during the press conference. "It sounds corny, but for low income Americans, something as simple as a flat tire can be a crisis. Putting money aside gives you hope."

Walmart and Green Dot collaborated with Commonwealth, an organization that creates prize linked savings products in the U.S., generating more than $153 million in savings by 75,000 Americans, according to Walmart's press release.

"Even a small amount of savings can help people going into debt or borrowing at high cost," said Tim Flacke, executive director of Commonwealth, during Thursday's call. Commonwealth was formerly known as D2D Fund, which teamed with Filene to study the impact of a prize savings program for credit unions. Other providers in the space include SaveUp, a startup that has teamed with payment companies such as PayPal to offer prize-linked savings incentives.

Prize Savings is available in all 50 states. The state rules regarding contests linked to savings accounts are complex, and there's also a federal law governing the practice. Regarding compliance, Walmart and Green Dot's program is operated as a sweepstakes, while the varied laws and regulations regarding prize-linked savings refer to "savings promotion raffles," according to an email from Walmart's external public relations firm.

Walmart contends it's the only retailer offering prize-linked savings nationally, though banks and credit unions have tried the model for years. Blue Ridge Bank in Virginia late last year unveiled a product in 2015, citing the same Federal Reserve stats as Walmart.

Prize Savings also allows Walmart to make a financial inclusion play while maintaining its positioning as an alternative financial services provider. The retailer a backer of the Merchant Customer Exchange, a nationwide team-up of retailers that unsuccessfully tried to deploy a common mobile wallet platform. Walmart has since debuted its own mobile payments app, which is seen as a spark for other retailers to build their own apps.

Walmart's more direct financial inclusion efforts include services such as the Walmart2Walmart transfer service, which the retailer aims at underbanked users that use transfers as a primary way to move funds to recipients at other Walmart stores. In an earlier interview with PaymentsSource, the retailer said its ultimate goal is to meld many of these digital payment and financial inclusion services into a cohesive mobile-driven financial services play.