It must have seemed like a Hitchcock film
over at the GreenDot
(NYSE:GDOT) headquarters last week.
After all, the company – long the dominant force in the prepaid card space – was under attack by birds. These weren’t the normal winged creatures we see cruising the skies on a daily basis, though. Rather, it was a new prepaid card from American Express
(NYSE:AXP) and Wal-Mart
(NYSE:WMT) that was given the brand name Bluebird. In light of how attractive the Bluebird Card's terms
are, the prepaid card market’s old guard should be scared.
Not only does this new product counter the traditional grievance consumers have with prepaid cards by charging only a single fee – a $2 ATM withdrawal charge that’s actually waived under circumstances – but it also offers a number of features that were either rare or completely foreign to the prepaid card market until now.
The Bluebird Card enables cardholders to load funds by simply taking a picture of a check, provides the ability to create sub-accounts with customized spending limits and account features, offers purchase protection for items that break or are stolen within 90 days, makes it possible to pay monthly billers that don’t accept plastic, and does not assess a surcharge for foreign usage.
The combination makes it the only card on the market suited to each of a prepaid card’s primary applications (i.e. checking account replacement, alternative check cashing tool, and a means of providing a child’s allowance). In fact, the Bluebird Card is actually one of the cheapest options available to consumers
, regardless of the role it will eventually play. And given how quickly prepaid cards are rising in popularity – consumers are expected to load 200% more onto them in 2013 than in 2010 – the prepaid card market is undoubtedly a lucrative one to corner.
This joint venture is indeed a significant cog in both American Express and Wal-Mart’s overall business plans. In addition to the product’s standalone profitability, it gives the former a product to market to the underbanked and people at the bottom of the credit spectrum, which are large consumer segments in which Amex currently has no presence. It also gets the latter closer to vertical integration and enables them to replace competitors’ products in the retail space. That’s obviously bad news for the likes of Green Dot and NetSpend
(NASDAQ:NTSP), which until recently enjoyed pretty firm control of the prepaid card market. Competing with the financial strength and visibility of either American Express or Wal-Mart would be difficult enough on its own, but trying to take on their alliance seems nearly impossible. So, the normal hit you’d expect the old guard’s business to take as a result of increased competition will therefore be exacerbated by the popularity of the new kids on the block and the fact that they have a largely superior product.
We’ve already seen proof of this happening. The price of GreenDot stock fell nearly 25% on the day of the Bluebird Card’s release and has settled at about 19% less than it was previously going for. The card’s launch has also brought NetSpend stock down from its 52-week high.
Investors are clearly worried about these companies’ ability to compete, and for good reason.
We all know that if the Bluebird Card is successful, many of the other largest banks and retailers will scramble to follow the example set by Amex and Wal-Mart. While that’s bad for the issuers who only offer prepaid cards
, it’s undoubtedly a good thing for consumers. Prepaid card terms should get better and better as everyone is forced to step up their game in response to the Bluebird Card, and we may even reach the point where the free prepaid card replaces the free checking account.
(See also: American Express Goes Down-Market With Wal-Mart
No positions in stocks mentioned.
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