American Express and Wal-Mart have launched a direct challenge to U.S. retail banks by unveiling a card-based account aimed at consumers who are disillusioned with or excluded from traditional banking services.
Using the retailer's stores to promote and support the card, American Express is seeking to reach low-income customers with the service, which allows for cheque deposits and payments by smartphone and has no minimum balance or monthly fees.
The service, called Bluebird, is Wal-Mart's latest foray into financial services. As the retailer continues to compete with encroaching online rivals, the move could also help attract customers to its stores, which will serve as Bluebird branches.
Dan Schulman, an American Express executive, said: "In an era where it is increasingly 'expensive to be poor', we have worked with Wal-Mart to create a . . . product that rights many of the wrongs that plague the market today."
He said it was aimed at the "wide swath of consumers who are either unbanked, underbanked or unhappily banked." The often complex fees associated with traditional bank accounts are on the rise partly due to regulation.
Many Wal-Mart customers have weak credit scores. The retailer is visited by 140 million Americans a week and the average income for households that shop there ranges from $30,000 to $60,000 (U.S.) a year, Wal-Mart said. American Express clients are typically wealthier.
The announcement triggered a 20 per fall in the shares of Green Dot, a pre-paid card group that earns nearly two-thirds of its revenue from an existing tie-up with the retailer. Wal-Martsaid it did not expect Bluebird to cannibalize its other financial services.
Some of Wal-Mart's previous efforts to get into banking – including an abandoned bid to acquire a banking licence in 2007 – have triggered fierce opposition from some US lawmakers and community banks.
The new card will be issued by American Express under its existing regulatory approvals. The companies would not comment on how much capital they were investing in Bluebird or on how they would make money from the service.
But Daniel Eckert, vice-president of financial services for Wal-Mart in the U.S., said: "We can do good for customers . . . while also doing well as a business."
Bluebird, which does not require a credit check, will not make loans or offer overdraft facilities. Customers will be able to deposit cash in their accounts at cash registers in Wal-Mart stores.
Some banks may not lament losing customers to Bluebird. JPMorgan Chase, for example, said this year that four out of five customers who hold assets of less than $5,000 with it were unprofitable. Almost one-third of U.S. consumers are in that segment.
Pre-paid cards are largely unregulated and the U.S. Consumer Financial Protection Bureau is seeking to tighten controls on them.
Richard Cordray, CFPB director, said in May that prepaid cards "have far fewer regulatory protections than bank accounts or debit cards or credit cards."
"And that is especially troubling because the people who use prepaid cards are, in many instances, the most vulnerable among us," Mr. Cordray said.
Additional reporting by Shahien Nasiripour in Washington.