After leadership shake-up, what's next for Green Dot?
Green Dot has had just one leader in its 20-year history, so what will become of the prepaid issuer now that CEO Steve Streit is stepping down?
While the company says its plan is to broaden its banking-as-a-service offerings, some industry watchers predict that Green Dot could wind up being sold.
“Fintech players or those who have low margins via non-differentiated business models will be key targets by other solution providers or even financial institutions,” said Bryce VanDiver, a partner with Capco’s banking and payments practice.
Green Dot CEO Steve Streit announced his retirement on Dec. 18 from the company he founded 20 years ago. Also departing is Green Dot CFO Mark Shifke. The company said in a press release its board began a succession planning process earlier this year.
The resignations surprised investors and analysts and further jolted the Pasadena, Calif.-based company’s stock price. The shares have plunged nearly 12% since the announcement and are down more than 70% for the year.
“We cannot but view this announcement with some trepidation,” Joe Vafi, a fintech analyst for Canaccord Genuity, wrote in a research note about the departure of Streit and Shifke.
“We believe the announcement injects additional uncertainty here, especially relative to corporate strategy moving forward,” Vafi added.
Streit tried to reframe Green Dot’s strategy in March, announcing plans to expand the focus of Green Dot’s BaaS offerings. It already counts the likes of Intuit, Stash, Uber and Walmart as BaaS customers.
The company calls it Bank OS, a simpler version of the platform that would enable partners to develop their own financial products just as those brands do, including offering credit cards, debit cards with loyalty programs or even a mobile app.
The target user for the next phase of its offering is “the app store developer, the social media influencer, the midsize retailer or the smallest store owner with three employees who wants to do some sort of payroll card or wants to do some sort of rewards card for their own customer base,” Streit said in a February earnings call.
The plan to broaden its BaaS customer profile was the right direction, said Andrew Schmidt, an equity research analyst at Citigroup who covers Green Dot.
“The expansion has the potential to increase the total addressable market by supporting custom fintech use cases for smaller clients through easier usability,” Schmidt said.
But the analyst noted that the company’s focus has since shifted “to competitive pressure that impacts the retail channel.”
Green Dot’s Go Bank has added competition now from challenger banks like Chime, N26 and Varo Money, which offer free access to checking accounts via a mobile app.
Green Dot has $1.32 billion in banking assets, and last July launched Green Dot Unlimited, which offers a savings account that pays 3% annual interest. In a year, the company said its Unlimited offering gained 55,000 "monthly depositing active accounts." Still, the firm acknowledges it isn’t enough.
“We recognize that we have more work to do to get our consumer business back on a growth trajectory, and that Green Dot's ongoing leadership in the free neobank era is not guaranteed,” Streit during the company’s quarterly earnings call in November.
The company should instead play up BaaS as its strong suit, Genuity’s Vafi suggested in a conversation with American Banker.
“There seems to be plenty of appetite to fund emerging fintech models, especially those focused on virtual consumer banking,” he wrote. “We are still quite positive of the Green Dot Banking as a Service product line and believe that management succession may contemplate leadership with deep experience in the enterprise-centric technology market.”
Citi’s Schmidt agreed, noting that regulation will keep sending non-bank players aspiring to offer banking products to BaaS firms like Green Dot.
“Technology companies and vendors and standalone digital banks in the U.S. typically have selected third-party bank partnerships over a bank charter or ownership,” he said.
Altogether, there’s a dynamic surrounding Green Dot that makes it attractive for M&A, Capco’s VanDiver said.
Deal-making activity from earlier this year focused on global, established players in the payment space, VanDiver noted.
“Acquisitions between payments processors and merchant acquirers were intended to fill gaps of existing solution sets while providing scale to compete with emerging fintech providers,” he said, noting FIS’s acquisition of WorldPay, Fiserv acquiring First Data, and Global Payments purchasing TSYS as examples.
Those deals were fueled by operational cost takeout and scale, he said. A differentiated company like Green Dot fits into the next phase of fintech acquisitions expected in the industry this year.
“Smaller deals will most likely focus more on capability acquisition, customer experience or product entry even if the economics do not align,” VanDiver said.
Vafi expected one of Green Dot's challengers to make a play.
"It could potentially be an acquisition if an upstart really wanted to dramatically increase their customer base quickly. I think the customer acquisition costs for some of the new entrants are pretty material. They have a lot of money and they've got the check books from their investors to go out and do something like this if they wanted. And it takes competition out of the market, which I think probably helps them all in an incentivizing way to get more customers."