Wal-Mart's Bluebird of Happiness

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This past weekend, big-box superpower Wal-Mart Stores Inc. (NYSE: WMT) and credit card giant the American Express Company (NYSE: AXP) released a statement that they would be making a big announcement on Monday. This led to a lot of speculation about a Wal-Mart-branded credit card from American Express, and even theories about credit cards designed with the poor and those with credit problems in mind. In the end, however, the announcement was much more tame than Internet speculation would lead one to expect; Wal-Mart was partnering with American Express to offer the latter's Bluebird pre-paid debit cards through Wal-Mart stores.

The cards, similar to the pre-paid cards that Wal-Mart currently offers from Green Dot Corporation (NYSE: GDOT), will be aimed largely at the portion of Wal-Mart shoppers who currently don't use a bank and rely on check-cashing services or Wal-Mart itself to cash paychecks. There are obviously others who will be attracted to the new pre-paid card option as well, but it's obvious from looking at the card's features that it was designed with those who either don't have a bank account or those who rarely use their accounts in mind.

Bluebird doesn't have any monthly maintenance fees and has very few other fees associated with it; you can load funds onto it for free via direct deposit or at any Wal-Mart cash register, and you can also transfer funds from a linked checking account for free. There are fees for using non-network ATMs and for loading the card using a debit card, though theoretically the later won't be too much of a problem because there likely aren't many situations where you would opt to transfer funds from your debit card instead of simply using the debit card itself. A smartphone app will let you take a picture of checks to make electronic deposits as well, similar to the "instant deposit" option that some online banks use. Speaking of the Bluebird app, it will supposedly allow peer-to-peer transfers from one Bluebird user to another that is similar to transfers made using eBay Inc.'s (NASDAQ: EBAY) PayPal service or similar banking services that allow p2p transfers through mobile apps.

Wal-Mart swears that the new card won't affect their existing relationship with Green Dot, though it's hard to imagine too many people preferring Green Dot's higher fees and fewer features to Bluebird. The main things that Green Dot have going for it is the Visa logo on its cards and a connection to users PayPal accounts. Visa is more widely accepted than American Express, especially in the places where likely Bluebird users are prone to shop; while many major retailers take both cards, smaller stores may not accept American Express-branded cards. The PayPal connection will also help to keep some customers using Green Dot services as the company's MoneyPak cards make it easy to deposit cash into PayPal accounts without having to wait up to five days for a bank transfer.

Green Dot isn't the only one that could have a bad day as a result of Bluebird; it will be just as easy to load money onto a Bluebird card as it is to pick up a MoneyPak card to load your PayPal account, and by using Bluebird customers can avoid the service charge they would otherwise encounter. With the availablility of p2p transfers and a fee-free loading process, some customers who relied heavily on MoneyPaks might start using Bluebird instead of PayPal for at least some of their transfers and online shopping. While it's unlikely to have a major effect on PayPal in terms of its sheer number of users, it could still end up at least partially cutting off the money transfer site from some of its customers.

It will be interesting to see how successful Bluebird is and whether it shapes up to be the banking alternative (or supplement) that Wal-Mart and American Express are obviously hoping it will be. both companies enjoyed a slight bump in stock prices after the announcement was made, though this has since settled back down so it remains to be seen whether Bluebird will have any lasting effect. Green Dot thus far hasn't been so lucky, with prices dropping nearly 20% and not yet showing signs of recovery. Green Dot may be able to turn things around and prove itself equal to or greater than its new competition, but having to fight for space on its home turf could very well make it an uphill battle.

Croaxleigh owns shares of Wal-Mart. The Motley Fool has the following options: short OCT 2012 $55.00 puts on American Express Company, short OCT 2012 $60.00 calls on American Express Company, and long OCT 2012 $65.00 calls on American Express Company. Motley Fool newsletter services recommend American Express Company and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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