You can’t accuse Green Dot of standing still.
In the past several weeks, the prepaid-player-turned-bank has added functionality and diversified its channel mix. A mid-March move to increase functionality on its cards and acquire two competitors, came on the heels of a January announcement of two forthcoming credit products. But looming over these efforts are the twin dangers of increased regulation of prepaid credit products and the danger that Walmart, which accounts for a significant portion of the company’s sales, may not renew its contract for MoneyCard.
Green Dot’s new card functionality will make peer-to-peer transfers between cardholders smoother and help manage multiple cards from one account. These products bring Green Dot into the territory of FamZoo and other programs for managing family finances with prepaid cards.
Green Dot’s CEO, Steve Streit, also teased new credit offerings in a Jan. 29 earnings call. First is a secured credit card, which Green Dot has sold in the past but withdrew several years ago. Second is an unsecured line of credit that Streit described in this way:
The unsecured line of credit is no different from any unsecured line of credit that you, yourself may have received from a bank. The difference is, is that in America today, FICO scores are not what they used to be. And in our demographics, they were never good to begin with and they’re not much better about now for sure. So if you’re single mom with 2 kids and you’re making $50,000 or $60,000 a year in household income, you’re not going to get a loan from any bank. And we want to change that with a highly pro-consumer, well-priced product. But to do that, you need to be able to underwrite the consumer because otherwise, you could injure the bank. So by using our data, by looking at the transactional behavior of customers of our bank, and we have a lot of customers as you know, we think we have a good opportunity for a small portfolio of unsecured credit.
On March 23, the CFPB closed its comment period on proposed regulations for prepaid cards, two of which apply to credit and overdraft products: A prepaid customer may not be offered credit in the first 30 days of holding an account, and payments for credit cannot be made by automatic withdrawal.
The ABA noted in its comment on the proposed regulation that additional clarity was need to define what a “prepaid account” is, but it may not be so easy to distinguish between checking accounts and prepaid accounts, according to Madeline Aufseeser, a senior analyst with Aite Group. “How the two are acquired is different, but they are a continuum, there is no wall between them,” she told Bank Innovation. “There are different pricing models and nuances, and the CFPB wants to treat them differently. But lately I’ve begun to think of prepaid as a distribution channel rather than as a product.”
Rumblings about Walmart ending its relationship with Green Dot come up every year, but gained traction in early March when a bearish investor claimed the relationship “will be lost” in 2016. The relationship in question is Green Dot’s management of Walmart MoneyCards, rather than the sale of Green Dot cards in Walmart stores. Aufseeser doubts Walmart can disentangle itself from Green Dot so easily, nor would it want to, since it seems to be able to negotiate a better deal for itself every year. Walmart cannot be its own bank, and it has things pretty good with Green Dot.
“The relationship is deep,” Aufseeser said. GoBank, Green Dot’s mobile-first bank account targeting millennials, is sold only at Walmart in the brick-and-mortar world, though it can be found online as well. Walmart MoneyCard funds are held at Green Dot Bank, and account for 30% of revenue. Green Dot-branded card sales have been softening at Walmart, Streit said in January, but still outsell the competition 10 to 1.
To diversify, Green Dot is expanding into check-cashing locations, the stronghold of NetSpend and a favorite target of the CFPB, and also acquired two smaller competitors, AccountNow and Achieve, both of which have strength in digital sales. So the first deal spreads risk for Green Dot’s retail sales, and the second helps with online account originations.
“Online accounts are better accounts,” Aufseeser said. “The average tenure of retail-dependent cardholders is shorter, and direct deposit rations are lower.”
Green Dot seems to be playing all its cards in an effort to broaden its risk profile, but in the prepaid world, no matter where you run, the regulators aren’t far behind.