Bank at Walmart? Cheap Prepaid Debit Cards Lure the Fee-Frustrated and Unbanked

Americans feeling disenchanted (or worse) with their banks after years of ever-increasing fees are increasingly turning to an alternative financial tool provided by the world's largest retailer: the Walmart (WMT) MoneyCard.

For a flat $3-a-month fee, consumers get a prepaid debit card that they can reload at their convenience. Free direct deposit is also available, and comes with a $10 bonus. The card requires no credit check or bank account, and there's no possibility of overdraft fees, since -- as one enthusiastic user told NPR -- "You can't spend what you don't have, so you can't go over. You don't get in trouble with it."

The MoneyCard is part of Walmart's push into the financial services sector, an area where the company evidently sees a massive opening -- understandably so, given the recent outpouring of scorn for the country's big banks. Customer anger found a convenient target this fall when Bank of America (BAC) announced plans to charge depositors a monthly fee to use their debit cards for purchases, on top of overdraft and other charges frequently incurred. The backlash was intense enough to compel the giant institution to backtrack.

But if anger at large financial institutions has only recently reached a flashpoint, galvanized by the Occupy Wall Street movement, the use of prepaid debit cards has been on the rise for years: In 2009, research firm IBISWorld estimated the value of the market to be between $50 billion and $160 billion. In September 2010, Consumers Union issued a report titled Prepaid Cards: Second Tier Bank Account Substitutes, in which researchers connected consumers' decisions to switch to such cards with recession-related uncertainty. But the report also noted that prepaid debit cards were still high cost, often carried confusing fees and offered little or no protection for customers' funds.

Walmart has addressed the fee issue, at least, and is attracting significant numbers of the unbanked with its MoneyCard. The Federal Reserve estimates that 60 million Americans -- one-fifth of the country -- deal primarily in cash. An expert on the debit card market told NPR he thought there were 2 million active MoneyCards. And while Walmart did not succeed in obtaining a federal bank charter, its MoneyCenters offer a range of financial services, including affordable check cashing, options for bill payments, and overseas wire transfers, in addition to prepaid debit cards.

The market for these cards may have begun among low-income workers and the unemployed in the midst of a recession, but they could well prove popular enough to stay in widespread use even if the economy improves.