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It has been a chilly Spring in the U.S., but at least one bird is chirping. American Express and Wal-Mart said on Tuesday that their Bluebird venture for financial services now has federal deposit insurance. The two teamed up last October to offer prepaid cards and cheque accounts to low-income households that are frustrated with the high fees on traditional bank accounts. The FDIC insurance opens up areas of growth for the fledgling service to people who were uneasy without it. Many of Wal-Mart's shoppers are military personnel, veterans and Social Security recipients. Direct deposit of government cheques can only be done with FDIC insured accounts. FDIC insurance also puts Bluebird on an equal footing with traditional banks and other pre-paid card providers, such as Netspend and Green Dot, which offer FDIC-insurance.
Wal-Mart unsuccessfully tried to become a bank several years ago. For Bluebird, Amex issues the cards and Wal-Mart distributes them. The FDIC insurance kicks in because Amex uses accounts at Wells Fargo, an FDIC member bank, for Bluebird's registered customers. Large banks also offer pre-paid cards but banking customers that use few services and hold low balances have become less profitable now that Dodd Frank has placed limits on things such as overdraft fees. But these are Wal-Mart's mainstay and it can monetise them further, while Amex can broaden its reach. Revenue comes from merchant transaction fees (and perhaps Walmart can cut its own transaction costs – the financial terms with Amex were never disclosed), and a few fees. There are no overdraft, monthly, activation or minimum amount fees. By the end of January, Bluebird already had 575,000 customers with $275-million loaded on cards. Given Wal-Mart's reach, there is room for Bluebird to spread its wings.