AmEx’s Prepaid Card for Target Could Hit the Bull’s-Eye

The "Upscale Walmart" and the upscale credit card company are officially an
item. American Express (NYSE: AXP ) on Tuesday announced the launch of new
prepaid cards that will be sold exclusively at discount retailer Target (NYSE:
TGT ). The American Express for Target available at the Minneapolis-based
retailer's nearly 1,000 locations after months of pilot testing in about 100
stores tout a simple, inexpensive fee system with a bevy of conveniences,
including a few perks commonly granted to AmEx cardholders. American Express's
prepaid cards and well as others work much like traditional debit cards. Users
transfer money into the card, which then can be used wherever the issuer's
cards are accepted. Users also can check their account balances online and
receive text alerts for low balances. However, one of the AmEx card's selling
points is a simple, two-fee format : $3 for the initial money load, as well as
subsequent in-store loads (online and by phone are free), and $3 for an ATM
withdrawal (however, users also get one free withdrawal per month). This differs
from numerous other prepaid cards, which can charge monthly fees of up to $10,
per-use purchase fees of $1 and fees for the account balance and alerts. But
while these prepaid cards are meant to put the power of plastic into the hands
of the little guy they cards are marketed to lower-income consumers without
traditional bank accounts or credit cards the actual corporate pairing is
itself a weapon of big business. That is, American Express and Target are
teaming against their bigger rivals Visa (NYSE: V ), MasterCard (NYSE: MA ) and
Wal-Mart (NYSE: WMT ), which are partnered through the issuing company Green
Dot. American Express has long enjoyed a reputation for exclusivity and relative
prestige in the credit card world, but Visa and MasterCard wield sheer numbers.
As of 2010, Visa boasted 269 million credit cards and MasterCard 171 million,
compared to AmEx's 48.9 million. Visa and MasterCard also issue their brands
to banks and rake in revenues from debit cards, and the pair had a respective
397 million and 123 million debit cards in circulation in 2010. American
Express, which has a different model than its larger competitors, is absent from
the debit card business. AmEx is similarly lagging in the tale of the ticker
tape. AXP shares, while up an impressive 16% on the year vs. a flat S&P 500,
have trailed the rest of the high-octane industry . MA stock is up almost 66%
year-to-date, while V shares are up 36% and even also-ran Discover Financial
Services (NYSE: DFS ) has churned out 34% gains. However, American Express has
found a way to muscle in on a market dominated by Visa and MasterCard prepaid
cards without jeopardizing the air of affluence surrounding its core Gold Cards
and others. If successful, AmEx stands to take a chunk out of a U.S. prepaid
card market that had an estimated value of $120 billion in 2009 and was
projected to eclipse $440 billion by 2017, according to a
MasterCard-commissioned independent study by Boston Consulting Group.