AmEx Insures Its Bluebird Prepaid Card, but Enhancements May Not Ensure Success

American Express Co.’s announcement that its low-fee Bluebird prepaid card account will be eligible for insurance from the Federal Deposit Insurance Corp. and offer checking account features could be a move to win more business from its upscale core cardholder base as well as provide more services to Bluebird customers.

AmEx and Wal-Mart Stores Inc. in October introduced the Bluebird prepaid card, a practically no-fee card running on AmEx’s Serve platform that offers direct deposit, mobile deposits, and person-to-person and bill payments. The card, which can be used for purchases at AmEx-accepting merchant locations, was developed for U.S. customers of Wal-Mart.

On Tuesday, AmEx and Wal-Mart announced features that make Bluebird accounts more like checking accounts, including eligibility for FDIC insurance on funds in all permanent Bluebird accounts. That allows account holders to arrange for direct deposits of U.S. government payments, such as Social Security payments, military pay and tax refunds. AmEx is working with Wells Fargo & Co., a long-time partner, which will hold all the deposits. Temporary Bluebird accounts will not be FDIC-insured.

AmEx also increased the amount of money customers can deposit in Bluebird accounts to $100,000 per calendar year, up from the original $10,000 limit. Bluebird customers can add personal and government checks to the accounts by mailing the check to American Express. Once the check has cleared, funds will be directly added to the account.

In addition, Bluebird customers will be able to order checks for their accounts, with access to one free checkbook until August. After that date, account holders with direct deposit can order their first checkbook with 50 checks at no charge. Thereafter, users will pay $26 for a book of 50 checks.

The upgrades to Bluebird reflect “feedback from consumers, advocacy groups and government officials [and] represents the next set of enhancements that further distinguish Bluebird from other financial-services options,” Dan Schulman, AmEx group president of Enterprise Growth, said in a statement.

The new capabilities build on the original package of features offered when AmEx first launched Bluebird. ATM withdrawals are free for Bluebird cardholders with direct deposit when they use their cards at the 22,000 ATMs in U.S. Bancorp’s surcharge-free MoneyPass network. Otherwise, withdrawals cost $2, as do out-of-network transactions, in addition to possible fees from ATM owners.

The card does not charge a host of fees that have attracted criticism from consumer groups, including monthly, activation, deposit, and customer-service fees. The checking service will not provide overdrafts, a lucrative source of fees for banks until a consumer and regulatory backlash reined them in about two years ago.

Competitors in the prepaid card market such as Green Dot Corp. honed in on Bluebird’s initial lack of FDIC insurance and inability to receive federal deposits as a major competitive weakness. But whether the new enhancements increase interest in Bluebird among the target group of unbanked and underbanked remains to be seen, says prepaid card researcher Ben Jackson, a senior analyst at Mercator Advisory Group Inc., Maynard, Mass.

If AmEx received “tons of requests” from Bluebird cardholders for FDIC insurance and direct deposits, “it might give American Express a boost to add these things,” Jackson says. “If, on the other hand, this is something they did because they received criticism from the consumer advocates and were getting some sense that there might be a competitive disadvantage, I don’t think we’re going to see an immediate jump.”

By offering checks and FDIC insurance, however, AmEx may catch the attention of regulators and consumers advocates “as far as what they are doing with that account and what are the expectations, and so forth,” he says. An AmEx executive as unavailable for an interview with Digital Transactions News.

AmEx also may be using the enhancements in Bluebird to win more business from its current card customers, Jackson says. “AmEx has charge cards and they have credit cards and they have gift cards, and they’ve been going along that path for some time now,” he says. “But the world as a whole has been moving from using credit cards to using debit cards. This may be a way for AmEx to win that business and essentially open up the opportunities of that debit shift for AmEx.”