Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is Wal-Mart's Bluebird Brilliant or an Invitation to the Slippery Slope?

Companies / Corporate News Oct 12, 2012 - 05:28 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: Don't look now, but Wal-Mart is getting into the banking business.

The retail giant has recently teamed up with American Express to offer a new account called the "Bluebird." Typical of the famed discounter, the account offers customers no minimum monthly balance requirements, no monthly maintenance fees, no annual fees, and no activation fees.


Bluebird customers can access their money for free using one of more than 22,000 ATMs, or simply be charged $2 if they are not part of a direct deposit program.

Is Bluebird too good to be true?

Yes and no.

On one hand, I think this is a brilliant alliance of two very different partners. Wal-Mart is obviously critical to mainstream America, so moving up the ladder to American Express gives them increased "oo mph" and brand projection.

It also allows the Bentonville, AR-based behemoth to tie up with a stable financial provider that's relatively unscathed by the financial crisis.

With regard to Amex, somebody in New York had a brilliant brain cramp when they hatched this union.

The company has always wanted to move into middle America but has been hamstrung on a variety of levels.

The Bluebird accounts give American Express unprecedented marketing reach into an entirely new customer profile while bypassing the traditional competitive credit card channels. At the same time, it also offers an entirely new source of capital.

While there are a good many details yet to be disclosed, I fully expect the Bluebird to be a win for consumers.

Not only is it going to create an entirely new class of "bank" but it potentially end runs the iron- fisted grip traditional financial institutions have had on consumers while also reducing the risks associated with credit markets. You can bet banking lobbyists will hate it.

Why Banks Already Hate Bluebird
And that brings me to the "no" part.

When you use a credit or debit card at Wal-Mart, Wal-Mart's bank has to pay the customer's bank something called an "interchange fee."

The pricing structure is complicated and expensive. Credit card interchange fees can vary significantly by region, card type and whether or not the transaction is conducted online or in person. They're usually a few percent of the overall transaction value plus some sort of predetermined base.

Larger merchants like Wal-Mart negotiate better rates but still have very little control over credit card rates, which average about 2%. U.S. credit card issuers have held the upper hand for years and it's estimated that they bank more than $30 billion a year from interchange fees alone.

When you use a traditional debit card at Wal-Mart to buy things, Wal-Mart still has to fork over an interchange fee only. Thanks to last year's Durbin Amendment, it's limited to $0.21 per transaction.

That means Wal-Mart gets to keep more money every time a customer swipes a debit card and banks have lost billions in interchange revenue.

Here's where the rubber meets the road.

Wal-Mart serves over 200 million customers worldwide a week. If those customers buy $25 per transaction using credit cards, the company forks over $0.50 per transaction or $100 million a week in interchange fees (calculated hypothetically using the 2% industry standards credit card fee).

If those same customers pay by debit card, Wal-Mart only has to hand over $42 million a week in interchange fees, which means that Wal-Mart saves $58 million it no longer has to hand over to the cards and card networks.

But if customers use the new "Bluebird" cards, there are no interchange fees, which means potentially that Wal-Mart gets to keep even more money for itself, further depriving the big banks of both their leverage and "their" cash.

That's because American Express charges something it calls a "merchant discount rate," which is really an interchange fee under the guise of a "prepaid discount" by any other name.

Functionally speaking, this makes the Bluebird accounts the same as a traveler's check which is, in turn, really a form of pre-paid credit card.

And what's wrong with that?...

Here's Where it Gets Slippery
As I understand the details so far, the Bluebird completely bypasses the Durbin Amendment to the Dodd-Frank Act. S pecifically, the consumer protection provisions in it related to restrictions on fees that banks and card networks can charge for the privilege of using traditional credit and debit cards.

So once again we have two major corporations that have teamed up ostensibly for the purpose of helping low- income consumers but are doing so in such a way that avoids laws that Congress has passed with the intention of regulating financial products and services.

To be clear, I am not suggesting that either Wal-Mart or American Express has any bad intentions.

Just that the potential for malfeasance is there because our regulators once again left a loophole the size of a Texas barn door in place.

Almost every problem we are dealing with today as part of the financial crisis ties, in some way shape or form, to institutions that played either outside the law or on the fringes of existing regulation.

Under the circumstances, I can only wonder who's going to follow American Express through the door Bluebird has opened. Apple? Home Depot? An instant paycheck cash chain?

And what it's actually going to take to regulate a "bank" that sells everything from muumuus to vegetables.

Source :http://moneymorning.com/2012/10/12/is-wal-marts-bluebird-brilliant-or-an-invitation-to-the-slippery-slope/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in