Is Walgreen on its way to becoming a bank?

The pharmacy chain announces a new prepaid debit card, and plans to add a broader suite of financial services.

By Motley Fool Oct 15, 2013 1:11PM

People walk by a Walgreens in Boston, Mass., on April 30, 2013 (Photo by Wendy Maeda/The Boston Globe via Getty Images)Prepaid debit cards have earned a bad reputation within financial circles. But that hasn't stopped the flood of new prepaid card offerings.

With the latest entry from major drugstore chain Walgreen (WAG), all signs point to even more major retailers joining the craze.

Walgreen announced earlier this week that it would offer a new suite of financial services, centered on its new Balance Financial prepaid card.

The Walgreen card, on which the retailer is collaborating with MasterCard (MA) for its card network services, will give customers the same benefits as any other prepaid card, allowing users to spend money just as they would with a debit card but without the fear of overdrawing an associated checking account.

But even though the Balance Financial card might not seem like anything special, it marks what could become a new trend in retail to serve a portion of the population that banks tend to ignore.

Reaching out to customers
In its press release, Walgreen cited the same figures that we've seen from past prepaid-card offerings. One out of every four American households doesn't have a full-service relationship with a bank or other financial institution, leaving 60 million adults without an easy way to do basic financial management such as paying bills or depositing paychecks.

As part of its broader financial offerings, Walgreen will have in-store kiosks, as well as online and mobile access to allow Balance Financial cardholders to check balances and move money between related cards. Next year, the retailer expects to add even more capabilities, such as direct access to Western Union's Money Transfer service and expedited bill-payment options.

Walgreen isn't the first major retailer to jump on the prepaid-card bandwagon. Last year, Wal-Mart (WMT) teamed up with American Express (AXP) to offer an expanded version of its Bluebird prepaid card.

The low-fee prepaid option gave AmEx exposure to a new set of customers, complementing its high-end membership-based card business with the underbanked, lower-income clientele that use prepaid cards. At the same time, Bluebird advanced Wal-Mart's foray into the financial-services industry, adding to check cashing and other existing services designed to make it easier for underbanked customers to spend their money at Wal-Mart locations.

Building loyalty
The real genius of the Walgreen offering is its link to the retailer's Balance Rewards loyalty program. Such programs have been a huge success for Walgreen and its competitors. Rite Aid (RAD) specifically noted the success of the recent launch of its wellness65+ loyalty program aimed at seniors, with the goal of encouraging repeat visits and deterring customers from switching prescriptions to competing chains.

Walgreen will offer additional rewards points for using the Balance Financial prepaid card, helping to create an even larger network effect for the offering. Additional moves like linking discounts and rebates to the card could go even further in making the card an essential part of the Walgreen's customer experience.

Of course, the Walgreen card will include many of the fees that make prepaid cards a questionable deal for a significant number of customers. Initial purchase and in-store reload fees will be $2.95, with a monthly fee of $2.95 if customers don't add at least $1,000 to the card in a given month. ATM cash withdrawals will be free inside Walgreen stores, but other ATMs will charge $2.95.

Still, the point for Walgreen and other retailers isn't the fee income they'll generate from their cards. Rather, Walgreen hopes that its card will keep customers coming back to the retailer for more of their shopping needs. If it's successful, then you can expect not only Rite Aid and other direct competitors to follow suit but also a broader set of retailers hoping to cash in on the same trend.

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Oct 15, 2013 3:33PM

Just what we need in this non-manufacturing, non-product, non-reality economy!!! Another f***ing bank!


Walgreen just wants to join the big banks and there friends in Washington, fleecing of America's lower and middle class.
Oct 15, 2013 4:14PM
Everybody wants to be a bank. Can't Walgreens stick to stale, overpriced candy?
Oct 15, 2013 4:20PM
These financial services sound like a huge rip-off; the cost of using them are too high.  Walgreens is taking advantage of  working class poor people.  I do not see why people use Walgreens when there are local pharmacies who serve their needs much better.   One of my family members uses Walgreens and the lines are long, they are frequently out of the prescribed medication when you bring in your prescription, which requires a second trip to pick it up, and the prices are not that great.  Why anyone would buy the alleged groceries, toys, candy and general junk they sell mystifies me, when you can get those goods elsewhere for a more reasonable price. 




Oct 15, 2013 3:51PM

YES Patrick, how true....


We use to have a green wall in our house..

Oct 15, 2013 5:54PM
Will my deposit slip be 3 feet long?
Oct 15, 2013 1:59PM
The prepaid cards aren't accepted if you want to make a contribution to public TV or public radio, for example.  And this is after those same entities raised the alarms on the thieving amoral pimping  leaders of the top 3 or 4 banks and caused us to pulled our few dollars out.
Oct 15, 2013 8:36PM
This is a very piss poor article. You start out with a statement and do not back it up in any way substantive. So why do prepaid debit cards have a bad reputation? You should answer this so you can have a complete article. The **** that gets passed off as news now a days is truly mystifying. Especially the shitty writing. From grammar mistakes to spelling mistakes to having the wrong name of the company. You might want to have your editor proof read your work Motley Fool!
Oct 15, 2013 6:37PM
If Walgreens expects to price their financial services the way they price their prescription drugs,  I don't think they will be very competitive or successful.
On the flip side of the coin,  they're already on every corner,  so they're handy.

Oct 15, 2013 4:37PM
I imagine all legal drug dealers could become banks.  They, and the insurance companies, are the only ones with money.  The "ask your doctor" ads seem to be working well.  I hope we go into default if ti would shut down the FDA and legal drug lords.  I want DEFAULT of the US Thursday morning!!!! Thursday!!!!!!!!!!!!
Oct 15, 2013 4:22PM
what a joke Walgreens is.  i purchased a gift card, only to be told they will accept ONLY cash or a debit card for gift cards...explanation:  too many stolen credit cards used to purchase debit cards.  so, i guess you can really trust them to require and examine identification for possible use of stolen or fraudulent credit cards. done with 'em...won't ever shop at Walgreens in the future - won't enter their facilities for a SINGLE item.
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