Mercator Perspectives

Bluebird is not the Last Word in Prepaid

Ever since Wal-Mart and American Express announced they would start selling a low-fee, reloadable prepaid card in early October, the industry and media have been abuzz about what the entry of Bluebird means. The new card was one of the main topics of conversation at the ATM, Debit & Prepaid show two weeks ago in Phoenix.

Initial reactions indicate the expectations for the new card are very high. The markets seem to think that Bluebird would displace Green Dot and other prepaid cards at Wal-Mart stores. But that is not all. The excitement over Bluebird led one columnist to write that “Historically, it was impossible to use a prepaid card as a bank account, since before Bluebird you could not deposit your paycheck directly.” This statement is ridiculous as prepaid card companies have been offering direct deposit on their cards for about a decade, but it is indicative of the excitement around the new product.

But before we declare victory for American Express and advise everyone else to close up shop, it is worth taking a few minutes to look at the limitations of the Bluebird product and prepaid history in general. The prepaid business is a complex one because prepaid cards are used by a variety of people and businesses that need different features and functions in a prepaid program to meet their needs.

In looking at Bluebird, it is important to note that the card is not insured by the Federal Deposit Insurance Corp or the National Credit Union Share Insurance Fund. This causes a technical limitation and possibility a marketing limitation. The technical limitation is that the card cannot be used to receive Federal benefits 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 a bank account alternative will want FDIC insurance. Prepaid card users pay attention to features as well as fees, so it is incorrect to think that a lack of FDIC insurance will not matter at all.

Also, Bluebird offers check cashing through remote deposit capture. This is an attractive feature, but it requires a five-day wait before funds are available. That delay could be critical for customers who need instant liquidity or who don’t have smartphones. This may make a difference for some customers, including those using the Walmart MoneyCenters to cash checks and load them onto their Walmart MoneyCards. The reload fee is waived when a customer cashes their check at the Walmart MoneyCenter, and the check cashing fee is $3 for checks up to $1,000.

In addition, while Bluebird is competitively priced, that alone will not determine the future of prepaid. While past performance is not an indication of future results, in 2009, Walmart lowered the fees for its cards to $3, and prepaid card provider nFinanSe followed suit. However, this pricing did not, as some predicted at the time, cause all prepaid cards to be re-priced to that level. The reasons for this are varied, but in short, it is because prepaid cardholders are willing to pay for various features and benefits. While the relative value of card features and pricing can be debated, the variety of feature and fee structures on the market shows that one size does not fit all. 

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