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Financial services competition heats up

Retailers don’t like the fees they are required to pay Visa and Mastercard, but retailers are willing to charge unwary and unbanked consumers plenty of other fees.

Kmart offered a good example this week when it launched its new Halogen brand prepaid card, which resembles a prepaid product Walmart launched several years ago. It should be noted upfront that products from both retailers offer those without a bank account a way to conduct financial affairs in a modern and nearly fee free way if used responsibly. However financial responsibility may not be a strong suit of those who don’t have a relationship with a financial institution and if not used carefully prepaid cards are a worse deal than the inventive fees charged by banks and conventional credit unions. Mailed statement fee anyone? Want to speak with a teller? Ka-ching.

Kmart’s new Halogen card offers unbanked individuals some advantages. For example, cardholders will have access to free ATM withdrawals at a nationwide network of more than 20,000 ATMs. That’s 2,000 more than Bank of America promotes on its Web site. In addition, there is no monthly maintenance fee as long as certain requirements are met and cardholders can have their paycheck, a tax refund or government benefit check directly deposited on the card at no cost.

“Kmart's Halogen Reloadable Prepaid MasterCard is a great money management solution for customers seeking an alternative to cash, credit or checking accounts,” said Jai Holtz, VP financial services for Sears Holdings, parent company of Kmart. “With the introduction of the Halogen Card, we’re giving our customers a smart, convenient and safe way to manage their money and gain control over their personal finances.”

Now for the fees. As a teaser, Kmart touts a zero activation fee for online sign up, but loading funds onto the card requires a visit to a store where a $3.95 is incurred. Walmart charges $3 for its card and $3 to load funds. Kmart charges $3.95 to purchase the card in the store, but there is no charge for the initial loading of funds. The fee for the subsequent reloading of funds in store is $3.95, whereas direct deposit is free. Direct deposit is free with Walmart’s card as well.

Where cardholders can get into trouble is if they don’t load at least $1,000 on the card in any given month or they make frequent loads in stores. Walmart charges a $3 monthly fee to cardholders to don’t meet the $1,000 threshold, a realistic possibility for those eking out a meager existence and are likely to be unbanked. Kmart hits these folks with a $5.95 monthly fee. Those with Kmart’s Halogen card face the prospect of a $2.50 ATM fee if they stray from the extensive MoneyPass network of ATMs while Walmart charges a $2 non-network ATM fee.

For cardholders who meet the deposit or usage requirements and stick with network ATMs the Kmart and Walmart cards can be a low cost and viable alternative to a traditional bank. For example, the deposit fee can be avoided if by using direct deposit. That might be appropriate for someone on government assistance, but not for those who operate outside of the formal economy and receive their wages in cash.

For example, consider an individual who loads their Halogen card weekly but not with enough money to hit the $1,000 fee avoidance threshold. They would be looking at a total of $21.75 in fees to load the card four times in a month. If they access an out of network ATM to check their balance (50 cents) and then used the same ATM to withdraw funds ($2.50)  twice a month they would be looking at $6 in ATMs fees on top of the $21.75 in account fees for a total of $27.75. Over the course of the year an individual who used the Halogen card in the manner described would spend $333 in fees, whereas the card is virtually fee-free to those who pay close attention to the fine print.

“This program is another way Kmart is providing its shoppers with increased value,” said Ron Hynes, group executive, global prepaid, MasterCard. “The flexibility to load money - from their job or benefits - combined with the immediate access to use those funds in-store or online, delivers greater convenience over cash and checks.”

The Halogen card was developed with Green Dot Corp., MasterCard and Synovus Bank. The card is issued by Synovus Bank and serviced by Green Dot, the same company Walmart uses for it prepaid products.