American Express Co. (AXP:US), the biggest U.S. credit-card issuer by purchases, is adding deposit insurance and check-writing capabilities for accounts tied to its Bluebird prepaid cards sold by Wal-Mart Stores Inc. (WMT:US)
Bluebird customers now can have Social Security checks, military pay and other government benefits deposited directly into their accounts. The change eliminates delays for those who previously had to wait for government checks to clear since federal agencies are prohibited from wiring money to accounts that aren’t protected by the Federal Deposit Insurance Corp.
Many of Wal-Mart’s 140 million weekly customers are soldiers, and they “weren’t allowed to get their military pay directly deposited to an account like Bluebird,” Daniel Eckert, the retailer’s vice president of financial services, said in an interview. Military and other customers who receive government checks asked for direct deposit, “so we immediately started working on that,” he said.
Bluebird customers, now exceeding 575,000, loaded more than $275 million onto their accounts since the product was introduced in early October through the end of January, Dan Schulman, 55, president of enterprise growth at New York-based AmEx, said in an interview.
“Whether you were unhappily banked or unbanked, we are able to deliver some traditional banking services in untraditional ways,” he said.
Customers also can write checks with their Bluebird accounts starting today. The service is designed to avoid overdraft fees by requiring customers to clear checks ahead of time through their mobile phones and write an authorization code on the check.
“You know you’re not going to bounce that check because you know it’s already cleared,” Schulman said. “You don’t have to worry about balancing your check book because it’s already come out of your account.”
Wal-Mart is further capitalizing on its push for Congress to cap debit-card “swipe” fees charged to merchants, a Dodd- Frank Act provision that has cut annual revenue at the biggest U.S. banks by about $8 billion. The payments industry predicted that lenders would impose checking-account fees in response to the legislation, pushing lower-income consumers out of the banking system.
Most reloadable prepaid cards, including Bluebird, are exempt from Dodd-Frank’s debit restrictions. The agreement with Bentonville, Arkansas-based Wal-Mart helps American Express expand beyond its core credit- and charge-card business and drive more spending to its global payments network. Targeting Wal-Mart customers contrasts with AmEx’s historic focus on affluent consumers.
Wal-Mart’s U.S. division abandoned plans to start its own bank in 2007 amid opposition from financial-services companies and lawmakers. At the time, the retailer’s application to open a so-called industrial bank in Utah would have enabled it to process credit- and debit-card transactions internally.
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