Ever since Wal-Mart and American Expressannounced they would start selling a low-fee, reloadable prepaidcard in early October, the industry and media have been abuzz aboutwhat the entry of Bluebird means. The new card was one of the maintopics of conversation at the ATM, Debit & Prepaid show twoweeks ago in Phoenix.
Initial reactions indicate the expectations for the new card arevery high. The markets seem to think that Bluebird would displaceGreen Dot and other prepaid cards at Wal-Mart stores. But that isnot all. The excitement over Bluebird led one columnist to write that”Historically, it was impossible to use a prepaid card as a bankaccount, since before Bluebird you could not deposit your paycheckdirectly.” This statement is ridiculous as prepaid card companieshave been offering direct deposit on their cards for about adecade, but it is indicative of the excitement around the newproduct.
But before we declare victory for American Express and adviseeveryone else to close up shop, it is worth taking a few minutes tolook at the limitations of the Bluebird product and prepaid historyin general. The prepaid business is a complex one because prepaidcards are used by a variety of people and businesses that needdifferent features and functions in a prepaid program to meet theirneeds.
In looking at Bluebird, it is important to note that the card isnot insured by the Federal Deposit Insurance Corp or the NationalCredit Union Share Insurance Fund. This causes a technicallimitation and possibility a marketing limitation. The technicallimitation is that the card cannot be used to receive Federalbenefits such as Social Security, veteran’s benefits, and others.The rules are laid out in 31 CFR 210.5.On the marketing side, it is possible that customers looking for abank account alternative will want FDIC insurance. Prepaid cardusers pay attention to features as well as fees, so it is incorrectto think that a lack of FDIC insurance will not matter atall.
Also, Bluebird offers check cashing through remote deposit capture.This is an attractive feature, but it requires a five-day waitbefore funds are available. That delay could be critical forcustomers who need instant liquidity or who don’t have smartphones.This may make a difference for some customers, including thoseusing the Walmart MoneyCenters to cash checks and load them ontotheir Walmart MoneyCards. The reload fee is waived when a customercashes their check at the Walmart MoneyCenter, and the checkcashing fee is $3 for checks up to $1,000.
In addition, while Bluebird is competitively priced, that alonewill not determine the future of prepaid. While past performance isnot an indication of future results, in 2009, Walmart lowered thefees for its cards to $3, and prepaid card provider nFinanSefollowed suit. However, this pricing did not, as some predicted atthe time, cause all prepaid cards to be re-priced to that level.The reasons for this are varied, but in short, it is becauseprepaid cardholders are willing to pay for various features andbenefits. While the relative value of card features and pricing canbe debated, the variety of feature and fee structures on the marketshows that one size does not fit all.