American Express Using Two Approaches to Reach All Potential Prepaid Customers
Although American Express’s Bluebird card has gotten the lion’s share of media attention when it comes to the company’s prepaid offerings, it has more than one prepaid card offering. The company has Bluebird, Serve, and American Express for Target, which is an open-loop, reloadable prepaid card that is simply branded as an American Express prepaid card.
Prepaid cards are an important segment for American Express because it gives the company a way to tap into shoppers’ preference for using debit over credit. Although the Durbin Amendment to the Dodd-Frank Wall Street Reform and consumer Protection Act has reduced the income available to financial institutions from debit cards, it has not done anything to stall debit’s popularity among cardholders. Because it has traditionally been an issuer of credit and charge cards, American Express had no way to tap into the debit business before the advent of its prepaid cards.
With all the different prepaid offerings American Express has, it is clear that the company is not looking for one type of customer. Recent announcements and the marketing messages around Serve and Bluebird show how the company is pursuing two different strategies with these products to offer products that fit different needs in the financial services market.
In short, Bluebird is designed to appeal to people with bank accounts who want an alternative to traditional debit cards to closely manage their budgets, to avoid fees, or to protect their debit cards from hackers online and criminals at the point of sale. Serve, on the other hand, aims more at people who are unbanked or underbanked, which has been the traditional model for general-purpose, money and financial services prepaid cards.
Consider that on its home page, American Express describes Bluebird as “your checking and debit alternative.” While on its Serve page, American Express emphasizes that it is a “your full-service reloadable prepaid account, with no credit check, no minimum balance, and no hidden fees.” Avoiding credit checks and minimum balances is much more important to those at the lower end of the economic spectrum, whereas Bluebird customers are more likely to be concerned with features such as check writing that will make it more competitive with their traditional checking accounts. Where Bluebird recently sent a message to its cardholders that they could add funds to their card for free using a debit card (formerly the charger was $2), Serve has recently announced free cash reloads at CVS and 7-Eleven stores in conjunction with the InComm Vanilla Reload Network. That same option is not available for Bluebird customers, according to the American Express Web site, though Bluebird cardholders can load cash for free at Wal-Mart registers.
As mentioned above, American Express has more cards. The company also offers Pass (“perfect for teenagers”), a Campus Edition card (“great for college students”), American Express for Target (“a better way to budget”), and the American Express prepaid card (“for you or the people you choose”). While this may seem like a lot of different products to manage, American Express has an advantage in that it can run all the cards on its own in-house platform (which happens to be the Serve platform), and as a third-party network, it is exempt from the interchange, routing, and feature restrictions imposed by the Durbin Amendment. This means the company can build up the volume necessary for profitability while bringing in more transaction income regardless of the features and functions of the card. Time will tell whether American Express will need to fine tune its segmentation of the prepaid market, but as program managers think about their competition, they need to consider the larger American Express prepaid program and not just focus in on one product such as Bluebird.