You see, American Express and Wal-Mart recently announced the launch of the Bluebird Prepaid Card, a joint venture with very attractive terms that seems poised to be both a disruptive force in the market and a blueprint for other major banks closely monitoring the industry's explosive growth. As a result, the price of Green Dot stock has fallen around 23% since October 5, the last day of trading before the Bluebird Card was announced. That means investors not only have to wonder what Amex and Walmart get out of this uncharacteristic venture, but also what it means for the long-term viability of the prepaid card market's old guard.
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What the Bluebird Card means for American Express: While investors shouldn't expect the Bluebird Card to result in short-term gains for Amex, it's a great long-term play for a company whose brand is based almost exclusively on offering elite credit-based products to high-income consumers. The Bluebird Card transforms American Express into a full-spectrum issuer, giving it a way to attract the roughly 34 million US consumers who are either unbanked or under banked and then cross-sell more lucrative products and services to those who perform best.
What the Bluebird Card means for Wal-Mart: For Wal-Mart, the Bluebird Card is much less about the Bluebird Card's direct profitability and more about how it fits into the company's general philosophy of "give people a reason to come to the store, and they will inevitably buy things." Consumers can now have their paychecks automatically deposited onto a Walmart card, cash checks at Walmart, and withdraw funds from ATMs in the store. Oh, and while they're at it, they might as well do their grocery shopping, buy some clothes, and pick up some needed household items. This is an especially effective strategy since the best time to convince low-income customers to buy is right after they receive their paychecks. As time passes by, less and less money will be available for spending. In other words, the Bluebird Card boosts Walmart's reputation as a one-stop shopping destination and will indirectly lead to long-term revenue gains.
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What the Bluebird Card means for the likes of Green Dot: For a long time, companies like Green Dot and NetSpend that only offer prepaid cards were big fish in a small pond. However, traditional banking powers are now beginning to circle like sharks around their dinner, attracted by the chum that is the Durbin Amendment's cap on debit card swipe fees and the projected success of both the Bluebird Card and the Liquid Card from Chase. Not only do these companies have more money than prepaid-specific issuers, which enables them to operate at lower margins and develop more appealing prepaid cards, but they also simply offer a greater variety of products and services. It's going to be very hard for Green Dot, NetSpend, and many others to compete long term with these high-profile, full-service financial institutions, which have larger distribution networks and the ability to graduate prepaid cardholders to better products over time. Investors can therefore expect a lot of prepaid-only issuers to either get bought up or disappear altogether.
Ultimately, that's a lot of impact for such a little piece of plastic named after
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such a small bird. And in truth, the opposite trajectories on which big banking institutions like American Express and prepaid-focused companies such as Green Dot have found themselves is a product of a broader perfect storm of factors. The passage of the Durbin Amendment, the way prepaid cards complement the business objectives of the big guys, and the entrance of some of large credit card issuers such as Chase and Capital One into the space have also played a role in dooming traditional prepaid powers, and investors must take note.
Odysseas Papadimitriou is CEO of Card Hub and Wallet Hub.