American Express Co. and Target Corp. have teamed up to launch a Target-branded prepaid card at the retailer’s U.S. stores as part of the card network’s strategy to grab a bigger share in the prepaid market.
The move also likely speaks to the Minneapolis-based retailer’s continued efforts to exit the financial-services industry: the company partnered with Amex even though it has its own credit card business.
Target has been trying to sell its card unit for years, putting the portfolio back on the sale block in January (see story).
Amex, meanwhile, has been ramping up its prepaid offerings in recent quarters, introducing a low-fee reloadable card in June (see story). It also set up a college campus prepaid ID card in July (see story).
The Target deal comes as the card network looks to expand its consumer base and pick up additional revenue at a time of great turbulence in the industry, thanks to new regulations for debit and credit cards, a sluggish economy, and the rise of mobile banking.
“The key area for us is to develop payment forms outside of the traditional credit card space,” Stefan Happ, senior vice president and general manager of American Express’ Global Payment Options division, said in a Nov. 15 interview.
“This type of product we think is going to be an extremely useful tool” for consumers that typically rely on cash, debit or checks to manage their money, said Happ. “So that’s a big pie of the U.S. population” that Amex has yet to reach, he added.
Even as Amex and the other card networks battle to keep the high-end consumer loyal with added rewards and other measures, banks and financial-services companies increasingly are looking to the so-called underbanked consumer that might not have a credit card or even a checking account.
Prepaid cards provide an opportunity to bring more of those consumers into banking.
“There is a huge opportunity to reach the underbanked and unbanked in the U.S. and globally,” says Sanjay Sakhrani, an analyst with Keefe Bruyette & Woods.
And for the card networks, prepaid cards provide “another opportunity to drive incremental volume flow over their network,” Sakhrani says. “It’s positive for Amex that they were chosen as a partner given they are somewhat new in the space.”
But the Target deal, which the Amex began testing at 100 stores in February (see story), is likely just one in a series to come
“We’re talking to a number of retailers. We have a very large footprint in gift cards,” and so Amex is talking to those partners about prepaid as well, Happ said.
The new Target prepaid card offers competitive fees in a market that has been criticized for high costs: it costs $3 the first time a consumer loads funds into the card account and $3 for any in-store reloads. Amex also charges $3 per ATM withdrawal, with the first withdrawal of the month free.
The card “carries a value that completely clearly distinguishes it from anything else in the marketplace,” said Happ.
For Target, the partnership with Amex further calls into question the fate of the retailer’s own credit card unit, which it has had up for sale for the better part of a year.
But the company’s chief financial officer indicated in August during a second-quarter earnings call with analysts that the retailer could close a deal late this year or early next year (see story).
The retailer is slated to report third-quarter earnings Nov. 16. It did not respond to a request for comment.