Two American giants are teaming up to take on big banks and help customers. American Express (AXP) has signed a new partnership with Wal-Mart (WMT) to bring prepaid debit cards to people without bank accounts. The move had little effect on shares of either company yesterday, but did however cause shares of rival prepaid Green Dot (GDOT) to fall over 20%.
The new service, called Bluebird, offers several advantages over a traditional bank account. The biggest advantages are no monthly maintenance fee, no activation fee, and no annual fee. The card directly takes on banks who have been raising fees to combat new legislation that has cut into profits.
The card targets low income shoppers who are without bank accounts. Bluebird promises to be "loaded with features. Not fees." Unlike traditional prepaid cards, consumers can load payroll deposits on the Bluebird card. Other enhancements include smartphone deposits, and mobile banking. Customers can use the "Remote check capture" feature to take a picture of a check for an instant deposit, similar to other big banks.
Customers with Bluebird cards will be able to use MoneyPass ATMs to withdraw and deposit money. There are over 22,000 MoneyPass ATMs throughout the nation. The ATMs come with no fees for those enrolled in direct deposit. Other fees may include a $2 fee for withdrawals. Customers are able to deposit money onto their card directly in Wal-Mart stores. The Bluebird card will be in 4,000 Wal-Mart stores next week. Wal-Mart has a base of over 10,300 stores around the world.
American Express is the big winner in this announcement. The company was previously attached to wealthier customers and always seen as third wheel to larger credit card companies Visa (V) and Mastercard (MC). American Express has now signed deals with Wal-Mart, Target (TGT), Office Depot (ODP), and other big box retailers.
Shares of American Express trade close to a fifty two week high of $61.42. I believe the string of new deals with retailers can get shares to a new all time high ($64.98 in 2007). Analysts on Yahoo Finance see the company earning $4.39 this fiscal year on $31.75 billion in revenue. The following year, analysts see earnings per share coming in at $4.73 on $33.63 billion in revenue. Expect those targets to increase as the company sees the advantages of prepaid cards and a string of retail partnerships. Without new earnings per share estimates, shares could get to a new all time high with a valuation of 15x forward price to earnings. Fifteen times 2013 estimates of $4.73 would give shares a value of $70.95.
The losers in this deal appear to be big banks and Green Dot. Large banks have been raising fees and losing customers. Bank of America (BAC) saw customers fight back after implementing a $5 monthly fee to use a debit card with an account. The bank eventually eliminated the fee, but not before losing angry customers in the first place.
Shares of Green Dot dropped over 20% on Monday. Green Dot had a partnership with Wal-Mart and counted on the large retailer for over 60% of its revenue. Over 6.1 million shares were traded Monday, versus a three month average volume of 890 thousand. The company does have a nice cash position, and large insider and institutional ownership. Green Dot now trades close to its book value of $8.36. The company reports third quarter earnings on October 22nd. The majority of questions will be about this American Express deal and how Green Dot will diversify itself away from Wal-Mart in the future. I would stay away from shares of Green Dot, but would check back in on the company around the time of earnings to see if they have a plan of attack going forward. Prior to the American Express deal, analysts at Yahoo Finance saw the company earning $1.31 in fiscal 2012, putting a price to earnings at under 10 after the company's fall.