Wal-Mart’s Bluebird looks more like bank product

The American Express and Wal-Mart debit card venture – Bluebird – is looking more and more like a bank product with the potential woo more consumers away from traditional checking accounts.

Wal-Mart announced yesterday (March 26) that Bluebird accounts will now be eligible for deposit insurance provided by the Federal Deposit Insurance Corp. – one of the few perks banks had over Bluebird accounts. A new check writing option is also available for some account holders, Wal-Mart said.

The retail giant is attempting to take market share in a growing unbanked or underbanker sector totaling some 24 million U.S. consumers.

The expected overall market for prepaid debit cards is between $75 and $80 billion loaded in 2012. This market totaled $57.2 billion in 2011, according to the Mercator Advisory Group.

The FDIC insurance hinges on a depositor having a government issued payment such as tax refund, military payments or social security payments directly deposited to the card.

Customers can also balance their Bluebird checkbook in real-time with pre-authorized check writing, add checks to their Bluebird Account by mail and add funds up to $100,000 annually.

“When we launched Bluebird last October, we were focused on serving the tens of millions of Americans who are not well served by the traditional financial services industry. The unbanked, underbanked, and the unhappily banked are beset by onerous fees and numerous inconveniences,” said Dan Schulman, group president, Enterprise Growth at American Express. 

He said Bluebird is designed to help make consumers’ financial lives easier, more convenient and less expensive.

“This announcement, which reflects feedback from consumers, advocacy groups and government officials, represents the next set of enhancements that further distinguish Bluebird from other financial services options.”

The product received some mixed reviews after the initial launch in last fall. The biggest complaints were related to customer service and lag time in getting deposits credited, especially when using the remote deposit capture now a routine offering by most traditional banks.

“Since launching Bluebird, we have been listening to our customers’ feedback and working hard to expand its features and services,” said Daniel Eckert, vice president of financial services for Walmart U.S.”

Bluebird will make check writing an option for account holders who obtain a pre-authorization code online or via a mobile application. Once a check is pre-authorized the funds are deducted immediately and held until the check is presented for payment. Bluebird members have access to one free checkbook (50 checks) until August. After then, the cost to reorder is $26 per book.

Critics say the check option is expensive with each check costing roughly 50 cents after the initial free book. Consumers can typically order 200 checks for less than $10 from several companies, but reordering through the bank is generally double to cost of ordering direct.

Bluebird is available online at www.bluebird.com and at more than 4,000 Walmart stores.

Ben Jackson, senior analyst with the Mercator Advisory Group, said the jury is still out on how many new customers will come onboard because of the FDIC insurance and checking options.

“If American Express and Wal-Mart are truly responding to customer requests then perhaps they will draw military or others who need the direct deposit feature other debit cards already offer. But if it’s just a strategy to be more competitive to the current user pool then the uptick in card usage will likely be minimal,” Jackson said.

American Expess CEO Kenneth Chenault said in February that customers loaded $275 million in funds on more than 575,000 Bluebird accounts. About 85% of Bluebird enrollees are new to American Express, and about 45% are under the age of 35.

Jackson said the FDIC insurance feature is made possible through a pass-through program American Express is allowed since it struck a deal with Wells Fargo under which it will transfer Bluebird deposits to the San Francisco bank.

Given that funds are held in an insured institution this allows the accounts to be covered by what is known as FDIC "pass through" insurance, Jackson said.

American Express did not say how much they were paying for the insurance coverage, as the FDIC does charge a premium to the banks who are covered by insurance.

Customer funds will be protected against losses of up to $100,000  per the account limit imposed by American Express.