The unbanked consumer segment is often identified as a prime target market for prepaid cards, and now the world’s largest retailer, Wal-Mart, is teaming up with its financial partner, GE Money, to launch a prepaid card aimed at its unbanked US customers.
The Visa-branded Wal-Mart MoneyCard will be a major expansion of Wal-Mart’s financial services for mostly low-income customers – an estimated 28 million US residents do not have a bank account, and many of them are regular shoppers at Wal-Mart.
According to Wal-Mart employees who have spoken about the product, it will be marketed to everyone who shops at Wal-Mart and also be available online. This represents a vast pool of potential cardholders, particularly among unbanked US consumers.
Wal-Mart’s move into prepaid comes a few months after it withdrew its application for a banking licence (see box). The retailer is now aggressively pushing its financial services business, such as its MoneyCenters which offer low-cost cheque cashing and money transfer services. Wal-Mart is to market the prepaid cards to customers as a form of bank account to access a range of financial services.
According to Visa estimates, US workers without bank accounts spend more than $300 a year in cheque-cashing fees, which can be reduced to $130 using a prepaid card.
Although the cards have not yet been rolled out on a nationwide basis, a website (http://www.walmartmoneycard.com/) details the card’s features and pricing structure. The cardholder’s name will be embossed on the card and the cardholder’s personal information will be kept on record. The card will be modelled on the existing Visa prepaid card, which allows cardholders to have their salaries deposited onto the card and to top it up at a range of locations, including supermarkets and convenience stores.
The level of fees for the Wal-Mart card has raised some eyebrows among industry analysts, given the size of Wal-Mart and the low-income consumers it is targeting. For instance, pay cheque loading will cost $3 per load, while cash loads are $4.64 each and ATM withdrawals are $1.95. Excluding direct deposits from employers, the minimum amount that may be loaded in a single reload is $20 and the maximum amount that may be loaded onto a card in a single reload is $1,100. The maximum amount that may be loaded onto a card in one day is $2,500, and the card balance can never exceed $3,000 at any time.
Wal-Mart is expected to offer incentives to support the expansion of its branded prepaid card, which could come in the form of merchandise or fuel purchase discounts as with Wal-Mart’s credit card programmes on the Discover network.
A few major US retailers, such as Safeway, already offer prepaid Visa cards, but Wal-Mart’s move is bound to reach a much larger number of customers and, given that the card is reloadable, it will mean an increase in spending and volumes at Wal-Mart. US research consultancy Aite Group predicts purchases made with network-branded prepaid cards will rise from $14 billion in 2005 to an estimated $38 billion in 2007.
ILC woes for Wal-Mart
The industrial loan company (ILC) fight in the US has moved from the boardroom to the halls of Congress.
In late May, the House of Representatives passed the Industrial Bank Holding Company Act of 2007. It would prohibit companies with less than 85 percent of revenue generated from financial services from owning or operating ILCs, thereby preventing almost all retailers and other commercial entities from operating industrial banks.
Wal-Mart’s application for an ILC generated fierce opposition from banks, regulators and consumer rights activists. The retailer withdrew its application in March, citing the controversy.
