Walmart, American Express Target the Unhappily Banked

Updated with analyst commentary.

NEW YORK ( TheStreet) -- American Express ( AXP) and Wal-Mart ( WMT) on Monday announced the launch of Bluebird, an alternative to debit and checking accounts, in an attempt to target "unbanked, underbanked and unhappily banked" customers.

At least one analyst argues, however, that the deal may be the beginning of a flight of more consumers into the banking shadows.

Customers who sign up for a Bluebird account will not have to maintain any minimum balances or pay monthly, annual or overdraft fees. Any fees customers pay will be "clear, transparent and within their control", the companies said.

The product builds on a pilot program launched late last year, in what seemed to be a direct response to customer backlash against bank fees. Bank of America ( BAC), JPMorgan Chase ( JPM) and other banks were forced to withdraw proposals to charge fees associated with the use of debit cards after customers threatened to shut down their accounts and take their business to credit unions.

Still, the fees associated with checking accounts continues to be on the rise. Walmart and American express cite a Bretton Woods study that found consumers now pay $259 a year for an average checking account, in addition to higher minimum balances and a growing list of fees associated with services.

"In an era where it is increasingly "expensive to be poor," we have worked with Wal-Mart to create a financial services product that rights many of the wrongs that plague the market today," said Dan Schulman, group president, Enterprise Growth, American Express in a statement.

Bluebird customers can get access to cash at a network of more than 22,000 MoneyPass ATMs nationwide. Cash access through MoneyPass' network is fee free and surcharge free for Bluebird customers enrolled in direct deposit. For customers not enrolled in direct deposit, each MoneyPass ATM withdrawal is $2. For out-of-network ATMs, each withdrawal is also $2, though additional ATM operator fees apply.

Cash added to the account via debit card will also be charged $2. Customers can add upto $1000 on daily basis to their account.

Other features include the ability to deposit money in a variety of ways including payroll deposit, remote check capture via the Bluebird mobile app or linking a checking, savings or debit card to the account and the ability to control subaccounts for friends and family from a smartphone.

At this point, overdraft facilities or a credit line are not available with the account. The companies hope to roll out additional features including check writing facility and more options to deposit money in 2013.

Customers can sign up for free at Bluebird.com or get a $5 starter kit at a local Wal-Mart.

The accounts are not FDIC-insured but are 100% backed by American Express' Travel Services division, the company said.

Neither company would elaborate on how the economics of the product works nor how much money they expect to make from the product.

Banks have frequently defended their need to charge fees, arguing that it costs more than $200 a year to maintain an average checking account, which renders accounts with low minimum balances unprofitable.

They have also said they are forced to charge customers fees in response to the Durbin Amendment under Dodd-Frank, which caps the amount banks can charge merchants for debit-card transactions. Critics of the rule have said that it benefits big retailing giants like Wal-Mart and has little to do with the crisis.

Rochdale Securities analyst Dick Bove says the Durbin Amendment has allowed retailers to enter into banking turf.

"The Consumer Finance Protection Bureau (CFPB) was established by the Dodd-Frank Act to monitor all consumer finance activities of banks," Bove wrote in a note Monday. "New products are supposed to be approved by this agency before it is offered to customers. Was this product approved by the CFPB? If not are companies allowed to create whatever consumer financial products and sell them as long as they are not banks? Does this incent the creation of a large shadow consumer finance market?"

Bove believes that if up-market customers of banks begin to shift to Bluebird, banks stand to lose. He also expects more retailers will enter the fray increasing competition for banks.

Wal-Mart already offers prepaid debit card service along with Green Dot ( GDOT). Shares of Green Dot, which derives more than 60% of its revenue from the offering with Wal-Mart, plunged in Monday morning trading and were last down 18% on the news of Wal-Mart's new partnership with Amex.

Daniel Eckert, vice president of financial services for Wal-Mart said during the conference call that the company has no plans to drop its arrangement with Green Dot.

-- Written By Shanthi Bharatwaj in New York.
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