American Express Using Two Approaches to Reach All Potential Prepaid Customers

by Ben Jackson 0

Although American Express’s Bluebird card hasgotten the lion’s share of media attention when it comes to thecompany’s prepaid offerings, it has more than one prepaid cardoffering. The company has Bluebird, Serve, and American Express forTarget, which is an open-loop, reloadable prepaid card that issimply branded as an American Express prepaid card.

Prepaid cards are an important segment for American Expressbecause it gives the company a way to tap into shoppers’ preferencefor using debit over credit. Although the Durbin Amendment to theDodd-Frank Wall Street Reform and consumer Protection Act hasreduced the income available to financial institutions from debitcards, it has not done anything to stall debit’s popularity amongcardholders. Because it has traditionally been an issuer of creditand charge cards, American Express had no way to tap into the debitbusiness before the advent of its prepaid cards.

With all the different prepaid offerings American Express has, itis clear that the company is not looking for one type of customer.Recent announcements and the marketing messages around Serve andBluebird show how the company is pursuing two different strategieswith these products to offer products that fit different needs inthe financial services market.

In short, Bluebird is designed to appeal to people with bankaccounts who want an alternative to traditional debit cards toclosely manage their budgets, to avoid fees, or to protect theirdebit cards from hackers online and criminals at the point of sale.Serve, on the other hand, aims more at people who are unbanked orunderbanked, which has been the traditional model forgeneral-purpose, money and financial services prepaid cards.

Consider that on its home page, American Express describesBluebird as “your checking and debit alternative.” While on itsServe page, American Express emphasizes that it is a “yourfull-service reloadable prepaid account, with no credit check, nominimum balance, and no hidden fees.” Avoiding credit checks andminimum balances is much more important to those at the lower endof the economic spectrum, whereas Bluebird customers are morelikely to be concerned with features such as check writing thatwill make it more competitive with their traditional checkingaccounts. Where Bluebird recently sent a message to its cardholdersthat they could add funds to their card for free using a debit card(formerly the charger was $2), Serve has recently announced freecash reloads at CVS and 7-Eleven stores in conjunction with theInComm Vanilla Reload Network. That same option is not availablefor Bluebird customers, according to the American Express Web site,though Bluebird cardholders can load cash for free at Wal-Martregisters.

As mentioned above, American Express has more cards. The companyalso offers Pass (“perfect for teenagers”), a Campus Edition card(“great for college students”), American Express for Target (“abetter way to budget”), and the American Express prepaid card (“foryou or the people you choose”). While this may seem like a lot ofdifferent products to manage, American Express has an advantage inthat it can run all the cards on its own in-house platform (whichhappens to be the Serve platform), and as a third-party network, itis exempt from the interchange, routing, and feature restrictionsimposed by the Durbin Amendment. This means the company can buildup the volume necessary for profitability while bringing in moretransaction income regardless of the features and functions of thecard. Time will tell whether American Express will need to finetune its segmentation of the prepaid market, but as programmanagers think about their competition, they need to consider thelarger American Express prepaid program and not just focus in onone product such as Bluebird.

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