World’s biggest retail chain, Wal-Mart Stores Inc. (NYSE: WMT) announced on Monday that it will soon introduce a prepaid card in partnership with American Express Company (NYSE: AXP), a move which would allow its low income consumers to access services such as smartphone deposits.
The deal comes as a surprised development; because so far both Wal-Mart and American Express had focused merely on high income consumers. The partnership between both companies is expected enhance their positions in prepaid card market. Unlike credit and debit card market, the prepaid card market is mainly unregulated and has lesser consumer protections.
The account, which will be known as Bluebird will become available from next week. Bluebird prepaid card holders will have access to features that are typically associated with credit cards such as American Express’s customer service, roadside assistance and mobile banking.
Even though both Wal-Mart and American Express declined to comment over the financial relationship involved in this deal, they said that introduction of the prepaid card will be a mutually profitable decision.
A Prepaid card, which is very similar to debit card, differs in one aspect. These accounts (prepaid) are not tied to a conventional, regulated bank account. As part of larger strategy, prepaid card issuers try to tap those consumers who either don’t have bank accounts or use these accounts sparingly. According to a data provided by the Center for Financial Services Innovation, an advisory company, the total number of people in the U.S. who don’t have bank accounts or those who use banking services very seldom are estimated to account for $45 billion of the total retail market.
Commenting over the deal, Daniel Eckert, vice president of financial services at Wal-Mart said to analysts in a conference call, “We know that the model is financially sustainable for both partners.”
American Express and Wal-Mart said that cardholders will not be required to maintain minimum balances, and there will not be any monthly or annual fees and overdraft fees.
Nonetheless, consumer advocates have said that shoppers will have to tread with caution as prepaid cards are highly unregulated. Accordingly the United States’ consumer financial watchdog, the Consumer Financial Protection Bureau, is bringing few restrictions on prepaid debit cards. The agency says that it is worried about hefty fees and too little disclosures by card issuers.
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