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.
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.
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.
More from Top Stocks
Just what we need in this non-manufacturing, non-product, non-reality economy!!! Another f***ing bank!
It's WALGREENS or THE WALGREEN COMPANY. It isn't Walgreen.
YES Patrick, how true....
We use to have a green wall in our house..
On the flip side of the coin, they're already on every corner, so they're handy.
Copyright © 2014 Microsoft. All rights reserved.
Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.