Mobile Acquisition Fuels Green Dot's Banking Ambitions

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To create a mobile banking offering that can compete with banks or the likes of Google Inc., the prepaid card marketer Green Dot Corp. is purchasing the location-based deals company Loopt Inc.

Green Dot, which owns Bonneville Bancorp, has been readying itself over the past several months for the launch of a new bank account. To that end, it is imperative that Green Dot create new, more compelling ways for consumers to interact with the company, says Steve Streit, Green Dot's chairman and chief executive.

"The pieces of the puzzle [are] coming together," Streit says in an interview. "To be competitive, and for banks to be relevant in 10 years from now, or five years from now, you need to have the pedigree and the DNA that is every bit as sophisticated as what Google or Apple or anyone else" is doing.

The Loopt deal, which Green Dot expects to close this month, makes it a more formidable opponent to traditional banks, analysts say.

"Green Dot has been and continues to be a threat to banks because they can offer an almost identical product as a much lower price point," says Wedbush analyst Gil B Luria. "If they can continue to do that as we move toward mobile, then they continue to be a threat to banks."

Many banks are coming out with mobile apps that offer complex capabilities, such as personal financial management, on phones, tablets and even e-readers. Technology companies such as Google and Square Inc., as well as retailers like Starbucks Corp. (and, reportedly, Wal-Mart Stores Inc. and Target Corp.), are also moving aggressively to handle consumer payments through handheld devices.

These offerings seem to be coming out well ahead of the demand for such tools — surveys often suggest that consumers do not share banks' enthusiasm for mobile banking and payments.

Green Dot already offers a mobile app to its prepaid card users. This app allows customers to locate nearby surcharge-free automated teller machines and check their account balance.

But those basic features aren't enough to serve the customers Green Dot plans to attract by offering a branchless bank account, Streit says.

Green Dot, of Monrovia, Calif., agreed to pay $43.4 million in cash for Loopt. Roughly $9.8 million of that amount is set aside to retain certain current Loopt employees.

Green Dot plans to turn Loopt's Mountain View headquarters into a development center to expand its digital offerings. Its planned features include a mobile account-opening tool.

Even before the Loopt deal was announced, Green Dot has been vocal about its plans to beef up its mobile offerings through location-based services and other technology.

"What we want to do is use location-based services to help control the end-to-end transaction and experience for the user," said John MacIlwaine, a former Visa Inc. executive who became Green Dot's chief information officer in December, in a January interview with Bank Technology News. "We already have all of the tech capabilities necessary to do this in house."

Though the Loopt deal could make Green Dot a tougher competitor to banks, observers have expressed concerns about whether Loopt will be as good a fit as Streit predicts.

With any purchase, there is the potential for a culture clash. That might make it difficult for Green Dot to retain Loopt's staff in the near term, says Celent senior analyst Zil Bareisis.

"I am not saying this will happen here, but it's always a major risk factor when you have a technology start-up joining the ranks of a larger and more established player," he says.

Green Dot may also not yet be ready to take full advantage of this acquisition, says Lawrence Berlin of First Analysis in a research note.

"The acquisition may make the product more attractive to Green Dot cardholders and merchants selling the cards, but that assumes a link between mobile connectivity and Green Dot cards that does not yet exist," Berlin wrote.

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