the “unbanked” or “underbanked” population

About a quarter of all Americans are either “unbanked”–that is, they don’t use conventional banking services at all–or “underbanked,”  meaning they may have either a checking or savings account but regularly use check cashing stores, pawn shops and other non-traditional banking services.  About 8% of the population is in the unbanked column, about 17% is underbanked.  (You can find more details in this PSI post.  The situation hasn’t changed since I wrote it.)

Why no bank accounts?  

The un/under population finds conventional banking services too expensive and bank locations not  convenient.  Of course, until very recently banks have been totally uninterested in this market segment, despite frequent Congressional prodding to be friendlier.

The situation has long been a problem/challenge/opportunity for WMT, because a large chunk of its customers fall into the un/under category.  There are two aspects to this:

–lacking a checking account or a debit card, the un/under generally find it hard to make money transactions, and

–if we estimate (read: make up a number) that conventional banking services cost at minimum $500 a year, then check cashing stores et al can (and do) charge $400 a year and still be a bargain.  Not good for un/unders, but basic microeconomics.

That’s not all.  Forbes has a good recent article on exploitative “celebrity” prepaid cards, which can end up costing a bundle.

That’s all cash that could otherwise be spent in WMT stores.

WMT can’t be a bank

Years ago it tried.  Despite the company’s unique position to serve the un/under community, furious lobbying both by banks and other retailers caused Washington to deny WMT’s banking application.

it’s turning to AMX for a prepaid card…

…one that will have very low fees.

The card, called Bluebird and bearing the American Express name, will be sold both by AMX online and in WMT stores.  It doesn’t require that you have a checking/savings account;  you just load cash into the card and use it.

WMT should benefit in several ways:

–its un/under customers will have more money to spend

–the service will doubtless make them more loyal to WMT

–it may attract new traffic to its stores, and

–WMT will presumably get a ton of information about card users shopping habits.

investment implications?

I’m not sure that, by itself, the Bluebird card is a reason to buy WMT shares.  They’ve already performed very well recently as domestic economic recovery has gradually widened to include ordinary Americans.  But as one of a number of positive measures from new management, Bluebird has put WMT back on my radar screen.