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) --

Wal-Mart Stores

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American Express

rolled out the radical Bluebird cash card service in October and now they have made the service so much better.

The companies on Tuesday announced that permanent Bluebird accounts would now be insured by the Federal Deposit Insurance Corp., because American Express will place funds in custodial accounts with FDIC-insured institutions, including its American Express Centurion Bank subsidiary, as well as

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Wells Fargo

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Having FDIC insurance means that Bluebird members can now have government payments, including Social Security payments, directly deposited into their accounts.

The Bluebird service was rolled out in October, providing a very solid alternative for "underbanked" consumers who may have been paying high fees to check-cashing services for access to their regular pay, or for money orders, bill-paying and other services.

Also see: America's Pack Up Bad Economy, Losing It In the Move >>

With the addition of the FDIC insurance, Bluebird is an alternative bank account, with no balance minimum and no fees for deposits or withdrawals, unless made from an out-of-network ATM. With Bluebird, customers can also make check deposits made through smartphone applications. Electronic bill paying is also free of charge.

So a customer without a bank account can easily avoid paying fees to check cashers, while setting up a convenient account with debit, bill-paying and smartphone access. With direct deposit, customers can have instant access to their regular pay, right at a Walmart store.

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Wal-Mart and American Express also on Tuesday rolled out "worry-free check writing," which makes it much easier to balance a check book. A Bluebird member can preauthorize a check, which means when the check is written, the funds are immediately set aside and the customer is given a code number. The code number can be written on the check, allowing the payee to confirm the check is covered, by calling American Express. This makes it much easier for the Bluebird member and the merchant to complete a secure check transaction.

And the "no overdraft" checks can be authorized by Bluebird members with the use of a smartphone.

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With Bluebird, Wal-Mart and American Express have put themselves at the head of the curve, by providing an excellent low-cost alternative to consumers faced with increasing deposit account service charges at large banks. They have also made a solid play for potential customers who may not even have bank accounts, enabling those customers to avoid recurring fees.

KBW analyst Sanjay Sakhrani late on Tuesday said in a report, "we view today's announcement as a positive for

American Express as the addition of FDIC insurance strengthens the value proposition of the Bluebird product and likely intensifies competition given it was previously a point of differentiation between incumbent players such as

Green Dot

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and American Express.

Of course, the availability of funds at Walmart stores is another point of differentiation for Bluebird.

"Given the uncertainty around how the new prepaid industry dynamics will play out, we would continue to remain on the sidelines for the incumbent prepaid players," Sakhrani wrote.

Sakhrani rates American Express "outperform," with a $70 price target. Shares of American Express $67.15 on Wednesday.

The analyst rates Green Dot "market perform," with a $12 price target. Green Dot's shares closed Wednesday at $16.53.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.