by. Henry Meier
Is the news yesterday that AMEX will now be providing deposit insurance on its prepaid reloadablecards a game changer that poses yet another threat to the credit union way of doing business or simply yet another example of the need to remain ultracompetitive with your banking products in a financial service sector already transformed by technology? I don’t know the answer, but if I was running a credit union, it’s a question I would be asking this morning.
Bluebird is the prepaid store-bought card launched by American Express in October 2012. What makes it such an intriguing product, beyond the credibility of its corporate creator (would you be more likely to buy a financial product from Kim Kardashianor American Express?), is that it is distributed in WalMartstores. WalMart has graciously agreed to reload the cards on behalf of users, which means that a person using this prepaid card never has to go into acredit union, or bank for that matter, to cash checks or pay bills; in short, the type of things which cause people togo into financial institutions in the first place.
By announcing that it was already shiftingits publicly stated business plan not to apply for federal deposit insurance, the corporation clearly feels that reloadable prepaid cardsare going to be more than niche products bought on a whim on a visit to a retail store and in fact anacceptable way for consumers to conduct their business. The seeds for yesterday’s decision were formed quietlyin a2008 legal opinion by the FDIC in which it overruled a previous interpretation and held thatprepaid storage cards could beeligible for share insuranceif, among other things, the moneyheld on the cards could be traced to a specific consumer and was ultimately held by a bank. In other words, for FDIC purposes, its function rather than its format matters when it comes to determining whether a prepaid card is a bank account in a person’s wallet.
