CORRECTED-BREAKINGVIEWS-Wal-Mart's banking twist curls through many cracks

(Corrects to say million not billion in final paragraph.)(Theauthor is a Reuters Breakingviews columnist. The opinionsexpressed are his own.)

By Daniel Indiviglio

WASHINGTON, Oct 8 (Reuters Breakingviews) - Wal-Martand American Express have teamed up for a useful kind offinancial innovation. The Bluebird card they unveiled on Mondaytargets Americans lacking access to many banking services. Itmay also tempt other customers with a model that's neithercredit nor typical debit. But with deposits uninsured,regulators will have to watch closely.

Bluebird presents a new option for often poorer consumerswho can't easily borrow or obtain affordable, traditionalbanking. It lets them reap many benefits of checking, includingmobile transactions, a debit card and even check writing in2013, with few of the associated costs. Those who directlydeposit some portion of their paychecks can avoid virtually anyfees.

It's a smooth move by Wal-Mart. First, the mega-retailer isprobably cutting its interchange costs. The partners aren'tdisclosing financial terms, but it seems unlikely Wal-Mart wouldpay as much as it does to other card issuers. And with itscashiers essentially becoming Bluebird tellers, it should helpthe company rack up extra sales when customers visit stores toconduct financial transactions.

Although Amex may collect fewer transaction fees fromWal-Mart than other retailers, Bluebird also could quicklybecome one of the discount giant's biggest payment sources.That's a mostly new customer base for Amex, which has longfocused on higher-income customers. The light fee structure willeven appeal to Americans fed up with bloated bank costs andtranslate into still more interchange revenue with negligiblecredit risk.

While Bluebird's unusual design helps it to fall between thecracks of existing financial products and services, it means thesame is also essentially true when it comes to oversight.Deposits will be backed 100 percent by Amex assets, but they'renot federally insured like most U.S. checking accounts. Andwhile the Federal Reserve regulates Amex, the Federal DepositInsurance Corp is the more traditional protector of customerfunds.

Bluebird also falls into a somewhat fuzzy area involvingstate banking authorities and the Consumer Financial ProtectionBureau. Of course, Amex just struck a deal last week with thenewly created agency to pay $112 million in fines and refunds to250,000 cardholders to settle allegations of deceptivepractices. It's all the more reason for financial watchdogs -and consumers - to remain cautious about anything like Bluebirdthat seems too good to be true.

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- Wal-Mart Stores and American Express said on Oct. 8 theywere teaming up to offer a prepaid debit card in an effort toprovide financial services to U.S. consumers who often don'thave access to traditional bank accounts. The companies callBluebird a checking and debit card alternative.

- Customers will be able to deposit cash with Wal-Martcashiers, as well as use online and mobile services to checktheir account, pay bills, deposit checks and transfer funds. Thenew card can be used for purchases at any retailer that acceptsAmerican Express. In early 2013, customers will also be able towrite checks for their account.

- The Bluebird card will have no periodic, activation ordeposit charges, the companies said. While withdrawal fees willbe waived at 22,000 Moneypass Network ATMs for customers whodirect deposit at least a portion of their paycheck into theirBluebird account, others will pay a $2 transaction fee withinthe network. All customers would pay that fee outside thenetwork along with any applicable third-party ATM fees.

- The card will also come with some typical American Expressbenefits like purchase protection, roadside assistance and fraudprotection.

- Reuters: Wal-Mart, Amex team up on card for lower-incomeshoppers


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(Editing by Jeffrey Goldfarb and Martin Langfield)