Citigroup Inc.'s card division is attempting to broaden its reach among underbanked consumers, and that of its retail partners, through a strategic alliance with Green Dot Corp., a distributor of prepaid products.
Green Dot will help market general-purpose gift and reloadable prepaid debit cards through retailers that have private-label or cobranded credit card relationships with Citi, the banking company said Thursday. All the prepaid cards will run on the Visa Inc. or MasterCard Inc. networks.
"Citi has a tremendous partner base and a tremendous reach," Mark Troughton, Green Dot's president of cards and network, said in an interview. "What they're looking for here is a consumer-oriented company that really understands the underserved market. … We're looking for broader distribution opportunities, and clearly Citi provides that en masse."
Mr. Troughton called the alliance a "long-term" one, but he would not disclose the exact length or how the revenue would be divvied up. The deal does not bar Green Dot from working with other issuers.
He also would not say which retailers will offer the cards. "We're not ruling out Green Dot's [existing] partners, but the focus will be on helping Citi and Citi's retail partners."
Rick Blasi, a senior director at Citi Cards, wrote in an e-mail that the agreement with Green Dot lets his company "provide consumers with prepaid card options" and allows Citi to "expand the breadth of services we can provide to our retail partners."
The prepaid debit cards can be reloaded at Citi's retailer partners, by direct deposit, and with Green Dot's MoneyPak, which is sold in denominations of $20 to $500 at retail stores. Cardholders can also withdraw cash at automated teller machines. Many of the details are still being worked out, the executives said.
Gwenn Bezard, a research director at Aite Group LLC, said it found to its surprise in a survey it conducted this year that "very few banks were taking advantage of retailers' locations" as prepaid card distribution networks. Instead, most issuers were offering the cards only in their branches or online.
Green Dot will give Citi a leg up in the general-purpose prepaid niche, Mr. Bezard said. "If you are going to be a major player in prepaid card issuing, you have to be serious about using retail locations as distribution channels. Citibank seems to be one of the few major prepaid card issuers trying to make a go of it."
Kimberly Gartner, the associate director of the Center for Financial Services Innovation, a nonprofit affiliate of Chicago's ShoreBank Corp., said issuing cards that can be reloaded through direct deposit will be "mutually beneficial" for Citi and the cardholders.
Cardholders tend to have longer relationships with this type of reloadable card, "the prepaid products are less disposable, and Citi would have a whole other array of products and services" that it could eventually offer these underbanked consumers, Ms. Gartner said. (Citi is a member of the center's innovators' roundtable, which she oversees.)
John R. Ulzheimer, the president of educational services at the lead generator Credit.com Inc., said that even though prepaid cards tend to carry high fees, for consumers without access to traditional credit, "if you can manage a card well, which shouldn't be that difficult, within 12 to 24 to 36 months your scores may have improved to the point" of qualifying for an unsecured loan.
Issuing such cards "seems to make sense for Citi," Mr. Ulzheimer said. "It seems to give them a pipeline into consumers who are nonprime, or with thin or no files … with little or no risk."
