The prepaid card company will introduce a bank account with a traditional debit card attached to it sometime this year, chief executive Steve Streit told American Banker in an interview on Thursday.
Until now, Green Dot has only sold prepaid cards, which can be used without access to traditional bank accounts, and related services. But its new product could set the Monrovia, Calif., company apart from its main prepaid competitors — while increasing its ability to challenge big banks for some of their customers.
"They have an opportunity to be a low-end disruptor to the bank system," says Wedbush Securities analyst Gil B. Luria.
There are some startups with similar ambitions to get into traditional banking, such as BankSimple and PerkStreet Financial Inc., but "they usually have to rely on other banks to issue their cards, and they don't necessarily have the ability to have broad distribution," Luria says.
"Green Dot has the scale, it has a bank charter, it has the resources to promote this. It has distribution online. It has distribution through retail," he adds.
Most prepaid card distributors rely on third-party agreements with banks and retailers to distribute their cards and process their payments. But selling its own traditional account is newly possible for Green Dot, which at the end of 2011 received the first-ever regulatory blessing for a prepaid marketer to buy a bank. Its $15.7 million acquisition of Bonneville Bancorp in Provo, Utah, closed in December.
Streit would not discuss further details of the planned bank account, including when Green Dot will launch it. He said that Green Dot is still hashing those details out with regulators.
His decision to mention the product before gaining regulatory clearance to launch it raised some eyebrows among analysts.
"Green Dot is a brilliant marketer that is going to need to adjust to being a bank holding company," payments consultant Philip Philliou said in an email.
Streit spoke to American Banker after Green Dot reported fourth-quarter earnings. The company's profit rose from a year earlier, but its revenues were lower than analysts on average had anticipated.
Green Dot executives said they had overestimated the business they would get from customers who received tax refunds on prepaid cards.
"We misjudged the retention of cards acquired by customers getting tax refunds," John L. Keatley, Green Dot's chief financial officer, told analysts during a conference call on Thursday afternoon.
People who were late filing their tax returns received their refunds on prepaid cards in the fall — but many of them immediately withdrew the funds at ATMs and did not continue using the cards, Streit said in the interview.
Green Dot reported its earnings at a time of high scrutiny on the fees prepaid companies charge — and increasing pressure from competitors to cut them.
Russell Simmons' UniRush LLC said on Thursday that it was eliminating and lowering a string of fees on its RushCard products.
