Wal-Mart has made big waves with its pre-paid debit card. With over 4,000 locations that have a huge amount of traffic, any effort by Wal-Mart to offer financial products is instantly a serious threat to banks. The $3 monthly fee for their debit card is highly competitive at a time when checking account fees have been rapidly increasing. As a result, Wal-Mart has been stealing clients from traditional banks.
A recent American Banker article highlights how some credit unions have started to “embrace this trend by modifying their ATMs to sell fee-free stored-value cards.” More banks should test these types of strategies to adapt to the rapidly evolving environment and compete against new threats like Wal-Mart.
This particular strategy may not be the silver bullet to win back or retain customers. The article points out that “people go to ATMs because they don’t want to use a card for their next purchase,” and the ATM may not therefore be the best delivery mechanism.
Even if customers take advantage of these pre-paid cards, it will not be sustainable to continue providing this service for free. Banks will need to continue testing to find the right price that makes the product workable for the bank and still a compelling value proposition for the customer.
Banks are clearly in need of innovation to develop winning strategies in an environment with increasing regulation, lower profitability, and pressure from low-cost competitors. Larger banks in particular have not innovated enough and should follow the lead of the smaller banks and credit unions. Banks cannot afford to be stagnant and cannot afford to roll out strategies that do not work. Trying many new strategies, measuring the outcome, and rolling out the ideas that work is the only way to win in this environment.