Green Dot (GDOT) is elbowing into a corner of the prepaid market that rival NetSpend has long dominated: check cashing stores.
Though the company only began selling its cards at check cashing stores last week, it has set an ambitious goal of becoming that channel's leading prepaid card provider. It has a ways to go, but recently announced deals with the chains RiteCheck, David's Check Cashing and Pay-O-Matic would put its cards in roughly half the check cashing outlets in the New York City area.
Green Dot, of Pasadena, Calif., has been looking to expand its distribution network following the expiration of its exclusivity deals with numerous retail chain stores last year.
It is also seeking lessen its reliance on Wal-Mart Stores, where the bulk of Green Dot's cards are sold. Green Dot currently receives about 65% of its revenue from its partnership with the retail giant.
Green Dot chief executive officer Steven Streit says that his company's presence in check cashing stores will allow it to reach more inner-city consumers. In a conference call with analysts last week, Streit said that Green Dot plans to offer its prepaid cards to customers of check cashers at a fraction of the price they are paying today, while also allowing the check casher to earn a share of revenue that is competitive to what they're currently getting.
"The opportunity to sell one more name brand at a price that's less than what they're currently selling seems to make a lot of sense," Streit said in an interview. "So it's a great proposition for the customer and for the check cashing location."
Green Dot claims that its customers pay an average of $4.37 per month in fees, not including cash reload fees, while users of NetSpend cards spend an average of $10.28 each month.
NetSpend, which was recently acquired by payment processor TSYS, declined to comment.
Last year, roughly 37% of NetSpend's revenues came from cards distributed at ACE Cash Express, which is the nation's No. 1 check casher, according to a securities filing. NetSpend also has partnerships with Cashland, the Check Cashing Store and other companies in that market, according to its website.
Larry Berlin, an industry analyst at First Analysis, says check cashing stores are a natural place to sell prepaid cards, which have historically been used by consumers who are unable to open a checking account.
Referring to Green Dot's expansion into check cashing stores, Berlin says: "I think it makes the market much more competitive."
Bill Carcache, an analyst at Nomura Securities, adds that Green Dot long had no reason to sell its cards at check cashing stores, because it had exclusive distribution deals at many prominent retail chains. Last summer, Green Dot's stock price plummeted after the company announced that it was losing many of its retail exclusivity deals, opening up new opportunities for NetSpend, as well as new entrants to the market, including American Express (AXP) and JPMorgan Chase (JPM). (Green Dot's shares have since rebounded.)
"As retail has opened up to competition the business case for entry into check cashing has become too compelling to ignore," Carcache wrote in a recent research note.
In addition to the company's push into check cashing stores, Green Dot announced last week that it is adding Home Depot, Kroger, Save-a-Lot, Dollar General and other retailers to its distribution network.
"We're essentially growing our retail footprint by one-third," Green Dot Chief Financial Officer John Keatley told analysts during a recent conference call. "So this is a very significant opportunity and investment for us."