Bluebird Upgrade: Trouble for Brick-and-Mortar Banks, or an Opportunity?

Last week, the banking industry raised an eyebrow as Bluebird rolled out a series of changes for its prepaid cardholders, including FDIC insurance, check writing, and a higher maximum balance of $100,000. The obvious (and probably correct) conclusion reached by many was that the American Express/Walmart backed operation was trying to become more like a bank than a prepaid card – throwing another curveball at brick-and-mortar banks trying to compete in an increasingly digital world.

Those who have been following this segment, however, will tell you that although Bluebird’s changes represent a major upgrade for its customers, it is far from the first – and almost certainly not the last – financial services provider to explore the bank-without-branches model. Only months ago, prepaid card giant Green Dot launched GoBank, a primarily mobile-based service similar to the new Bluebird. Online banks such as Ally and ING Direct have been around for years; the military-focused USAA Federal Savings Bank has operated since the 1980s with just one physical branch. Increasing numbers of regional banks and credit unions are offering the option to use competitors’ ATMs for free. In fact, online banking – or at least branch-independent banking – is probably not even such a novel concept anymore; it’s simply becoming the reality of the 21st century.

Don’t get me wrong: Bluebird and GoBank are significant for the banking industry. But not because they’re online – rather, because they have begun blurring the line between “traditional” banking and online payment apps, and because they have also started to blur the line between the banked and the unbanked consumer.

Until now, there has perhaps been a bit of a flippant attitude toward payments apps and prepaid because of their historical limitations. Services like PayPal, Google Wallet, and Green Dot are all excellent at what they do, but they didn’t “feel” like a bank because that’s not what they were trying to be. But not anymore.

Similarly, the stigma of prepaid is being challenged by these newcomers – both in the banking industry as a risky small-transaction headache, and among consumers as a poor-man’s alternative to a bank account. American Express and Walmart might seem like an unlikely pairing for a joint venture, the former with its elite high-end focus and the latter with its reputation as a working man’s discounter. But the dichotomy is actually a surprisingly good representation of the new market they’re trying to create: The intersection of physical and digital, of the banked and the unbanked, of payments and traditional banking.  For a long time, ideas like “Someday I’ll have to compete with PayPal” or “Someday I’ll have to compete with Google” have been scary for banks – particularly smaller ones – but as last week’s Bluebird announcement shows, that day is drawing ever closer.

Does that mean branch banking is dead? Far from it. As neat as Bluebird and GoBank may be, they aren’t for everyone; as convenient as my PayPal mobile app is, I can’t use it for everything – it was no help at all this morning when I had to go to a bank branch to deposit cash and pick up a roll of quarters for toll money. The fact that Bluebird included checks in its new offering sends the unmistakable message that while the new technology is up-and-coming, traditional full-service banking remains very useful, and the market for it isn’t going away any time soon.

The takeaway for banks, then, should not be that they’re about to suffer the same fate as the newspaper industry, and that their impending doom at the hands of the Internet is just around the corner. The difference is that so many new banking technologies can be repurposed, rebranded or re-imagined that institutions of all sizes can take advantage of them.

So instead of questions like, “How can I defeat this new digital technology and ensure my own survival?” banks should be asking themselves, “What about this idea can I use to give my own customers a better experience?” Make no mistake: The future of banking isn’t going to be all brick-and-mortar, but it isn’t going to be all mobile and microtransactions either. Whatever hybrid of digital and traditional emerges, there is an opportunity there for the ones who embrace it first and most eagerly.

About the Author: Jeff Hempker is Vice President of Digital Check Corporation, an Illinois-based manufacturer of check scanners and imaging equipment for the financial industry. Visit Digital Check online at www.digitalcheck.com.