The folks at American Express and Wal-Mart are chirping about Bluebird, especially since it looks like they don’t have to worry about the July expiration of the Dodd-Frank Act’s ban on commercial firms owning industrial loan companies or holding limited purpose banking charters. The executives at Wal-Mart say they are through looking for a banking charter, and given the success of their alliance with Bluebird, who can blame them?
According to a report published this week in American Banker, by January Amex’s Bluebird card had more than 575,000 accounts and $275 million in funds after the first three months. This includes 85 percent of customers new to American Express and under age 35. As we reported earlier, in March the Bluebird card added FDIC insurance and checkbooks to draw from accounts that can be valued up to $100,000 each year. So even without a bank charter, Bluebird functions as a true checking account.
In a separate story, American Banker reports that the expiration of the Dodd-Frank moratorium on commercial institutions holding bank charters seems moot; the horse has already left the stable.
As the story reports, the Dodd-Frank ban was imposed before the banking industry became the villains in Washington. Following the financial crisis, some feel that putting commercial companies compete with banks is not such a bad idea. The Independent Community Bankers of America want to extend the freeze to keep retailers out of banking, but the industrial banks or ILCs have proven they have a viable business model. The Dodd-Frank moratorium is more likely to go out with a whimper rather than a bang, since there is no real demand for bank charters. The success of the Amex/Wal-Mart model shows you don’t really need one.
American Banker quotes Raj Date, founder of the advisory firm Fenway Summer LLC, saying:
"It's caused controversy before and it certainly has the potential to cause controversy again... The ground is moving under our feet in financial services where a lot of nontraditional financial services companies are emerging. All parties concerned can hide their head in the sand in the short term … but the fact of the matter is not too far from now there is going to have to be a time and a place to address a lot of overlap between the retail and banking industries."
Wal-Mart is proving to be a great financial resource for the under-banked, and given its success without the benefit of a charter, who know what may happen when the Dodd-Frank moratorium expires. Since deposit rates are not expected to rebound any time soon, banks and credit unions need to look out for new competitors offering services that could affect fee income. New retail banking models are sure to erode banking services at some level, and to compete, banks and credit unions will need to do some soul-searching and more consumer research to determine how they can better serve customers and continue to earn their trust and their business.
Where banks do have an advantage is in bundling banking services. We have been tracking the impact of product bundlers and are now completing a new consumer survey that reveals what emerging financial services consumers want, how much those services are worth to consumers, and most importantly, what service bundles will consumers find most valuable and worth paying for.
New competition will mean it’s time to try new tactics. Service fees and attractive service bundles are just one new approach that might keep retail banking competitors at bay.