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AmEx’s Prepaid Card for Target Could Hit the Bull’s-Eye

AXP, TGT are taking a joint shot at their bigger industry rivals

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American Express AXPThe “Upscale Walmart” and the upscale credit card company are officially an item.

American Express (NYSE:AXP) on Tuesday announced the launch of new prepaid cards that will be sold exclusively at discount retailer Target (NYSE:TGT). The American Express for Target — available at the Minneapolis-based retailer’s nearly 1,000 locations after months of pilot testing in about 100 stores — tout a simple, inexpensive fee system with a bevy of conveniences, including a few perks commonly granted to AmEx cardholders.

American Express’s prepaid cards — and well as others — work much like traditional debit cards. Users transfer money into the card, which then can be used wherever the issuer’s cards are accepted. Users also can check their account balances online and receive text alerts for low balances.

However, one of the AmEx card’s selling points is a simple, two-fee format: $3 for the initial money load, as well as subsequent in-store loads (online and by phone are free), and $3 for an ATM withdrawal (however, users also get one free withdrawal per month). This differs from numerous other prepaid cards, which can charge monthly fees of up to $10, per-use purchase fees of $1 and fees for the account balance and alerts.

But while these prepaid cards are meant to put the power of plastic into the hands of the little guy — the cards are marketed to lower-income consumers without traditional bank accounts or credit cards — the actual corporate pairing is itself a weapon of big business. That is, American Express and Target are teaming against their bigger rivals Visa (NYSE:V), MasterCard (NYSE:MA) and Wal-Mart (NYSE:WMT), which are partnered through the issuing company Green Dot.

American Express has long enjoyed a reputation for exclusivity and relative prestige in the credit card world, but Visa and MasterCard wield sheer numbers. As of 2010, Visa boasted 269 million credit cards and MasterCard 171 million, compared to AmEx’s 48.9 million. Visa and MasterCard also issue their brands to banks and rake in revenues from debit cards, and the pair had a respective 397 million and 123 million debit cards in circulation in 2010. American Express, which has a different model than its larger competitors, is absent from the debit card business.

AmEx is similarly lagging in the tale of the ticker tape. AXP shares, while up an impressive 16% on the year vs. a flat S&P 500, have trailed the rest of the high-octane industry. MA stock is up almost 66% year-to-date, while V shares are up 36% — and even also-ran Discover Financial Services (NYSE:DFS) has churned out 34% gains.

However, American Express has found a way to muscle in on a market dominated by Visa and MasterCard — prepaid cards — without jeopardizing the air of affluence surrounding its core Gold Cards and others. If successful, AmEx stands to take a chunk out of a U.S. prepaid card market that had an estimated value of $120 billion in 2009 and was projected to eclipse $440 billion by 2017, according to a MasterCard-commissioned independent study by Boston Consulting Group.

Article printed from InvestorPlace Media,

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