Wal-Mart and American Express Join In Prepaid Card Deal

It is a surprising alliance between the discounter Wal-Mart and American Express, which until recently has been focused on high-end consumers. The move is intended to strengthen both companies’ position in the prepaid card market — which, unlike credit and debit cards, is largely unregulated and has far fewer consumer protections.

The account, called Bluebird, will be available next week. The companies are positioning it as an option for people turned off by bank fees. “The only fees consumers will ever pay are clear, transparent and within their control,” such as out-of-network A.T.M. fees, the companies said in a release.

Wal-Mart and American Express declined to give details of the financial relationship between the two companies, but indicated both would profit from the card. The fees disclosed by the companies were generally lower than those Wal-Mart now charges for its prepaid MoneyCard.

Bluebird means prepaid card holders can have access to features that are usually associated with credit cards, like American Express’s customer service, roadside assistance and mobile banking. But consumer advocates say shoppers should be careful in the largely unregulated world of prepaid cards. The nation’s consumer financial watchdog, the Consumer Financial Protection Bureau, is preparing restrictions on prepaid debit cards. The agency says it has concerns about high fees and inadequate disclosures.

Advocacy groups have questioned whether prepaid card issuers clearly explain to cardholders the fees that come with products, including charges to activate the card, load money on it, check a balance at cash machines and speak to customer service. Consumer advocates have said that the cards, which are typically marketed to lower-income customers, have so many fees that they erode money loaded onto the card.

Prepaid cards work much like debit cards, except that they are not tied to a traditional, regulated bank account. The cards are part of a larger strategy by lenders to tap into the so-called unbanked or underbanked population — customers who use few, if any, bank services. Such people are considered a $45 billion market, according to the Center for Financial Services Innovation, which provides advisory services.

For the Bluebird account, customers can sign up free online or via mobile phone, or pay $5 in a Walmart store. They receive a card stamped with the American Express logo, which they can use anywhere American Express is accepted. They can set up direct deposit for paychecks and deposit other checks by taking a mobile phone picture of them. And they can withdraw cash. The companies do not perform a credit check before creating an account.

American Express and Wal-Mart said there would be no minimum balances to maintain, no monthly or annual fees and no overdraft fees (the account does not allow overdrafts, as it does not issue paper checks). It will cost $2 per out-of-network A.T.M. withdrawal, and $2 per withdrawal without direct deposit, but the companies did not disclose other fees as of now. Wal-Mart’s MoneyCard prepaid card costs $3 to buy, $3 a month and $3 to reload.

“We know that the model is financially sustainable for both partners,” said Daniel Eckert, vice president of financial services for Wal-Mart U.S.

David Robertson, publisher of The Nilson Report, an industry publication for payment systems, said companies in deals like this typically shared the amount charged to merchants when a card was used. He said he expected that Wal-Mart had negotiated a lower merchant-fee rate for card use at a Walmart than competitors would receive.

Mr. Robertson said Wal-Mart had most likely realized that its MoneyCard, run by the company Green Dot, was not appealing to all customers.

“This market is growing, and it’s moving beyond just that chunk of people that we consider to be underbanked,” he said. “It includes people who might be wanting to buy a prepaid card for other reasons, like budgeting purposes.”

Green Dot’s stock declined 20.2 percent on Monday, though Mr. Eckert said that Wal-Mart would continue to offer its MoneyCard.

Wal-Mart’s financial services plans were once more ambitious: to get a federal bank charter, meaning it could make loans and get deposits insured by the Federal Deposit Insurance Corporation. But there was opposition from the banking industry and politicians who were worried about small banks. Five years ago, Wal-Mart ceased trying to get a charter, and instead started building services that did not require a charter.

Lenders have been clamoring to grab a bigger piece of the booming prepaid card market. In 2009, consumers held roughly $29 billion on prepaid cards, according to the Mercator Advisory Group, a payments industry research group. By the end of 2013, that is expected to swell to $90 billion.

A number of the nation’s largest lenders, including JPMorgan Chase, U.S. Bank, Regions Financial and Wells Fargo, are aggressively rolling out prepaid card offerings.

One incentive for banks to dive in is that prepaid cards are not restricted by the Dodd-Frank financial regulation law. Thanks to the exemption from Dodd-Frank, banks can charge merchants high fees when a consumer swipes a prepaid card. A recent study by Pew, a nonprofit research group, also indicated that some customers were unaware their prepaid cards were not necessarily protected by the F.D.I.C.

Dan Schulman, group president of enterprise growth for American Express, said in a call with reporters that Bluebird was not F.D.I.C.-backed, but that under money-transmittal regulations, American Express was required to hold assets to back up 100 percent of the money in accounts.

Prepaid cards have increasingly come under fire from regulators. Last month, the Office of the Comptroller of the Currency brought an action against Urban Trust Bank in Orlando, Fla., which has branches in Walmart stores. The regulator said it discovered “unsafe and unsound banking practices” related to the community bank’s prepaid card offerings.