Bluebird’s Appeal Seen as Limited
Ben Rogers, research director at the Filene Research Institute, said the new card will play on some consumers’ desire to unbundle their financial lives and relationships instead of having them all in one place. It will also appeal to consumers who have either had difficulties opening checking accounts in the past, dislike checking account fees or like the additional technological tools Bluebird offers.
“If you are someone who has had a problem opening a checking account in the past, maybe because of a hit on Chex Systems, or if you have had bad experience with overdraft fees or really anything, Bluebird might seem appealing,” Rogers said. He added that Bluebird might spur both banks and credit unions to look at how they offer transaction services, including ease of use and price.
Rogers did not consider Bluebird a threat to the existence of either banks or credit unions because the card service does not have a lending feature, and both Walmart and American Express executives have been firm in saying Bluebird will not offer loans.
“People are always going to need loans, and as long as credit unions can offer them at low interest rates, there will be a demand,” Rogers said. “That will keep them seeking out credit unions.”
But the new prepaid card will have an impact on both bank and credit union lending since the transaction accounts usually provide an anchor for the member or customer within an institution and that relationship often provides cross selling opportunity for loans.
Credit unions may have to step up their loan marketing to compensate, Rogers added and may need to start making the whole relationship a bigger selling point with potential members earlier on. And he added that the card could hit noninterest income still more since transaction accounts provide that through both card interchange and overdraft protection fees.
The difference between a relationship with the CU and having a Bluebird card is one of the things that Erika Bell, vice president of strategy and services at the 51,000-member $117 million Latino Community Credit Union. Almost all of the members of the Durham, N.C., institution were unbanked before joining the credit union.
“We strongly believe that a full-service financial institution with affordable and ethical products is the best option for families,” Bell wrote in response to an emailed question about Bluebird. “Our prepaid card product is less expensive and, with a relationship at our credit union, members move on to establish credit and better opportunities for the future. A setting such as Walmart that only offers very basic transaction services may preclude users from accessing affordable credit, establishing themselves in the mainstream financial system, and ultimately creating wealth for their families.”
Indeed, Michelle Jun, senior attorney with Consumers Union, a national consumer protection organization, observed that unbanked consumers have both near-term and long-term needs.
Unbanked consumers need to be aware that while Bluebird might offer a suite of low-cost payment services, the card will never take the place of a true relationship with a financial institution that someone might need later to finance a car, house or obtain a credit card, she said
Transcard, a MasterCard branded prepaid card that can be issued in conjunction with partner financial institution, sought to reassure financial institutions that it would be able to compete with Bluebird. Transcard pointed out that Bluebird’s use of the American Express network means it has a noticeably smaller footprint than Visa or MasterCard. In addition, the lack of deposit insurance should be another key point to raise with consumers, the card issuer advised.
An executive with American Express acknowledged last week that funds on Bluebird cards will not have deposit insurance.
“Certainly, when two big players like American Express and Walmart get together to launch a reloadable prepaid card, it needs to be acknowledged as an industry inflection point,” Transcard wrote in a analysis of Bluebird. “However, the potential shortcomings in the Bluebird card offer lead us to believe that our financial institution partners can compete successfully against Bluebird now and for the long-term. With broader brand acceptance, regulatory protections for cardholders, and the convenience of purchasing and loading cards in your branch networks, your prepaid card offer delivers a lot of value to offset the price differential of Bluebird cards.”
Yet American Express and Walmart have identified weaknesses in the current financial system that Bluebird can exploit for competitive advantage.
For example, Bluebird allows cardholders to establish up to four sub-accounts on every Bluebird account at no charge. These sub-accounts are in the sub-account holders name but can be filled by the account holder for free. And they can be filled more quickly than financial institutions or money transfer services are able to.
Bluebird card holders also will be able to send and receive money from other Bluebird accounts via email or mobile phone, again for free, something that the majority of financial institution cards still cannot do.