Bluebird vs Greendot. Prepaid wins.

Walmart made Green Dot.  Now it’s making Blue bird.  The low-cost merchant has long offered a full suite of payments products to its customers.  From international money transfer to bill-pay to check cashing and prepaid, Walmart has been a pioneer of financial services for the emerging middle class.  In 2010 a venture-backed company originally called NextEstate went public largely due to its exclusive deal with the retailer to distribute its general purpose, reloadable, branded prepaid card.  At some point, after the IPO, and after Walmart financial services executive, Jane Thompson, moved on, Green Dot’s deal became non-exclusive.  Walmart did a deal with American Express, which has made a massive investment to market its nascent prepaid capabilities, and dealt a massive blow to the value of Green Dot.

Unlike everyone else, it appears, I believe Green Dot is undervalued and remains a critical player in prepaid (disclosure: I own no GDOT stock).  I also believe that Amex’ prepaid effort will benefit the prepaid industry more than it will the company.  On the former, insiders are buying the stock, the company is worth half of what it has in cash (and near-cash), and we have yet to see its new product made possible by its purchase of Green Dot Bank.  (I also anticipate, by the way, that Green Dot is going to buy Russell Simmon’s competing RushCard).

On the latter, American Express’ Bluebird appears to be a great product.  It is low-cost and does more than the average general purpose (GPR) prepaid card (like sub-accounts, and roadside and purchase protection).  It’s got a great website, and great promotional materials.

But most importantly, Amex finally finally finally frames prepaid for what it should be, a checking account replacement, instead of a glorified gift-card.  I can’t stress enough how important that is.  The media, consumer advocates and regulators have had it in for prepaid, believing that the exceptions of Kardashian cards are the norm and that prepaid is basically a sham for low-income users.  To be sure there are bad actors (although very small in numbers), and there are quite a few good-but-not-amazing prepaid products (which still beat out a checking account with overdraft on an average use-case).  Bluebird is “Your Checking & Debit Alternative.”  Brilliant.

So, if Bluebird is so great and Walmart so big, why won’t it be a success? First, because they will make very little money on it, if not lose money.  No fees is awesome for consumers, but there are actually costs associated with running a program like this.  I’m guessing that Amex plans to make money on dormant accounts, or cross-sales to traditional products, or better interchange on some Durban slight of hand.  Second, because American Express is not “everywhere you want to be.”  It is accepted at about 4.5million merchants worldwide.  That’s a lot, but it is only just over half the 8 million merchants where Visa is accepted.  And guess what, it’s not accepted where the underbanked work, live and shop.  And third, because I think that relationships aren’t purchased on a J-hook.  In other words, it should be no surprise that most prepaid cards purchased from a retailer, hanging next to a pack of gum, will enjoy a short life.  I’m betting that will be true for Bluebird as well, unless they start taking online customer acquisition seriously.

So, in short: I wish Green Dot and Amex the best.  I think Green Dot’s got a second act and I’m excited to see it.  I think Amex will ask itself why they left home without their charge card. I think that the prepaid industry will have gained priceless value in being legitimized by Bluebird. And I think consumers will benefit as a result, because for many of the “underbanked” a bank account will never be an acceptable option.