WalMart, AmEx Banking the Poor

NEW YORK (TheStreet) -- Last month the FDIC made a big deal out of pointing out that 17 million adults are "unbanked," and 51 million are considered "underbanked," meaning they have poor access to checking accounts and credit cards.

Every big problem like this has hidden within it a big opportunity, as American Express ( AXP) and Walmart ( WMT) seem bound to prove.

Without banks, consumers rely on check cashing services and pawn shops that take a huge bite out of every dollar going through them. Companies like Fast Cash Financial Services ( FCFS) on the transaction side and EZ Pawn ( EZPN) on the credit side do big business, as I noted at Seeking Alpha recently, because they have offices where these people live. The margins are enormous.

Past efforts to reach these consumers through technology, prepaid debit cards offered by companies like Green Dot ( GDOT) and Netspend ( NTSP), have failed, even with celebrity endorsers like Russell Simmons and Magic Johnson, because it's tough to get poor people to trust plastic and celebrities aren't brands. Plus, folks want a physical location, not a virtual one.

After trialing this business earlier in the year and seeming to back off due to poor results, as American Banker reported at the time, WalMart and American Express have now decided to go all-in with a prepaid debit card dubbed Bluebird, Yahoo News reports.

Bluebird offers the unbanked and underbanked enormous value. These are Walmart shoppers. They can now get money turned into AmEx card value at any Walmart cashier, rather than having to join a single line at the front of the store. This makes a difference. Walmart cashiers don't have glass windows in front of them. Walmarts are clean. Try being a mom living on $30,000 a year -- things like this make a difference.

A modest paycheck, deposited directly through Bluebird, will now create free access to 22,000 ATMs in Amex's ExpressCash network. I just checked near my own Atlanta address, and found 15 ExpressCash locations within 1.2 miles of my house. Apparently those no-name "ATM machines" at all the local convenience stores are actually AmEx machines -- who knew? Next year the plan is to roll out paper checks -- nothing gives my neighbors more pleasure than writing checks that won't bounce.

At Business Insider, Nerdcard's Anisha Sekar says "believe the hype" about this deal. Free to activate, no monthly fee, no charge for adding money to it at your local Walmart.

This could be a big deal for AmEx, which is fighting MasterCard ( MA), Visa ( V), and many of their third-party processors. Expect higher transaction volumes, built on cash deposits, not credit risk. There's an opportunity to make a new pitch to merchants -- especially if they add a branded mobile payment solution.

This is an even bigger deal for Walmart. The cards help fend off competition from Family Dollar ( FDO) and Dollar General ( DG) units that may be closer. AmEx is considered an upscale brand -- its credit cards are the default at Costco ( COST), which caters to the upscale consumer.

As Walmart builds out its network of "Neighborhood Markets," which The Champion newspaper reported on recently, this format can be driven closer to where these customers live -- and every store a bank.

Can these companies make money at these prices? Where are the costs? The stores and ATMs are installed. Beyond that, it's all electronic. It's all cash, not credit. Your competitors have much higher prices, so it could be easy to grab market share. You have a big-name brand this market trusts going to bat for you.

Competition is returning to a vast, nearly untapped market. Competitors will have to respond. Underserved consumers are going to be keeping more money in their pockets, and some big name brands will be using computer networks to make a lot of money.

It's a win-win-win. How often do you get to write that?

At the time of publication, the author was long COST.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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