American Express aims to serve unbanked and underbanked
Amex, home of that object of envy, the Black Card, is expanding in an unexpected direction – to provide services to the unbanked and underbanked.
“Our financial systems are failing to meet the needs of a large portion of people around the world,’” Dan Schulman, group president, enterprise growth at American Express said at Money2020 in Las Vegas. “There are more than 2 billion people in the world, and 70 million in the US, that are poorly served by the traditional financial system.”
The group extends across quite an income range and can include households earning from $50,000 to $150,000 who spend all, or more than all, of their monthly income. It also includes many who have no credit, no access to credit, and often no bank accounts of any description.
More than 1,800 bank branches have closed over the last several years in the US, so many people don’t have access to a bank. Others are annoyed at the high fees that banks charge.
“Ironically, the less money you have, the more it costs to manage it and move it around,” said Schulman. Payday loans have interest rates of 400 to 500%, a money order can cost 5% for $100 and people without bank accounts can pay from 2% to 10% to cash a cheque.
American express has launched two products that aim to use technology to reinvent pre-paid cards: the first is Serve, a platform to provide almost all the features to address financial inclusion with 15 different ways to add funds to the account including direct deposit and remote check capture.
The second is Bluebird, a prepaid card launched with Wal-Mart almost a year ago, now has more than one million accounts.
“We see customers live their financial lives on the Bluebird platform, paying bills, writing pre-authorised checks, and shopping at merchants who accept the American Express card,” Schulman said.
87% of the Bluebird enrollees are new to American Express and nearly half are under 35, he added.
Far from diluting the brand, holders of older American Express cards who knew about the new products rated the company higher than cardholders who had never heard of them.
Serve account holders can do direct deposit of paychecks or government funds free, pay bills online free and withdraw money from 22,000 Moneypass ATMs. Soon they will be able to deposit cheques using smartphones.
One problem with prepaid cards is that adding cash to them often costs $3 to $4.
Starting this fall, Serve clients can add cash at 14,000 CVS stores and many participating 7/Eleven stores free of charge. Serve has also launched a reserve account for savings and 36% of customers are not moving money into the reserve account on a regular basis. The account costs $1 a month, free if the customer does direct deposit or deposits $500 or more.
“We are building one of the most comprehensive prepaid accounts,” said Schulman. The Aité Group, a financial technology analytics firm, said the $1 a month fee at American Express contrasts with an average of $4.57 for other prepaid products.
In addition to helping people who have struggled with bank fees and pending hours in lines to pay bills, Schulman thinks this could mark fundamental change in finance.
“The penetration of mobile phones truly has the potential to disrupt the prevailing wisdom that it has to be expensive to be poor,” he said. “I think we are entering the era of the nonbank – consumers have all the power of a bank branch in the palm of their hand. Technology will redefine the world of consumer retail banking.”
