With little room to add major new retail partners to sell its prepaid debit cards, Green Dot Corp. is focusing on new features, especially mobile, to increase same-store sales and reduce churn.
"We have a plan for new products and different ways to accept checks and process payments and things we think will be helpful add-ons for our customers," Steve Streit, Green Dot's chairman, president and chief executive, said in an interview Thursday after the Monrovia, Calif., company's first earnings conference call since its July initial public offering.
Green Dot, which sells cards with both the Visa Inc. and MasterCard Inc. brands, and its competitors have in recent years added a variety of functions, including direct deposit and online bill-pay. The intention is to get people to use the cards longer, which remains a struggle, Streit said during the call.
The strategy is particularly pressing for Green Dot, given that its cards already are sold in more than 50,000 retail sites, including Wal-Mart Stores Inc., 7-Eleven Inc., Walgreen Co. and CVS Caremark Corp. stores. It said Thursday that in July it signed an agreement with another convenience store operator, Circle K, to sell its cards, beginning in the fourth quarter.
"There's not a lot of new doors they can get into," said Gil Luria, an analyst at Wedbush Securities in Los Angeles.
Though there are "always meetings happening with new retailers," most of the company's growth "won't be from new retailers," Streit told analysts. Rather, it would come from increasing same-store sales, driven by new products and services.
Activations of new cards in the second quarter totaled 1.5 million, a 67% increase from a year earlier but down 17% from the first quarter. The higher first-quarter figure was partly due to a relationship with Intuit Inc. that allowed users of its TurboTax software to receive their tax refunds on a Green Dot card.
Green Dot should focus on making prepaid cards more functional, Luria said, particularly for its target underbanked demographic, as well as raising awareness of the product, which still is low relative to traditional bank services.
Green Dot already lets cardholders obtain balance histories and reload sites through text messaging. Customers also can gain access to the company's account website with a mobile browser.
"We are in development to create a faster, easier-to-use cell phone app to handle basic and advanced account management," Streit said.
The company also is seeking regulatory approval for its planned $15.7 million purchase of Bonneville Bancorp, a Provo, Utah, bank holding company that operates the single-branch Bonneville Bank. In anticipation of the deal's approval, Green Dot's product development team is working on other new services it hopes to roll out, including mobile remote deposit capture, he said.
Such a service, which a few financial services companies, including USAA Federal Savings Bank and JPMorgan Chase & Co. currently offer, would let customers scan checks with their phones and deposit them directly into their prepaid card accounts.
Green Dot is focusing on "anything we can do" to "make the process less expensive for the customer and keep our customers as far away [as possible] from" check-cashing businesses and payday lenders, Streit said.
During the call, he said he expects the tight credit market and increasingly higher costs for banks' services to "drive customers our way."
The company hopes to get an answer by yearend from the Federal Reserve Board on its application to buy Bonneville Bancorp, Streit said. Previously the company had said it expected an answer in the third quarter.
Streit said the company has had a continuing dialogue with the Fed and other regulators. "We don't know there's any [specific] reason" that the process is taking longer, he said. There has "been nothing that we view out of the ordinary" in the questions regulators have asked.
New regulatory responsibilities resulting from recent financial reform law have probably played a role in slowing the process, he said.
Streit has said that owning a bank would let it trim operating costs by issuing cards directly to consumers rather than relying solely on third-party banks to issue the products.
Green Dot ended the quarter with 3.2 million active cards, those that had been used to make a purchase, an automated teller machine withdrawal or cash reloading within the previous 90 days. That was down from 3.4 million in the first quarter but up from 2 million in the second quarter of 2009.
Gross dollar volume loaded onto Green Dot cards reached $2.4 billion, down 17% from the previous quarter but up 77% from the year earlier.
The year-over-year surge in card activations and dollar volume helped increase Green Dot's operating revenue to $90.3 million, up 44% from second quarter of 2009.
The company's net income for the quarter was about flat with the year earlier, at $12.5 million. Net income allocated to common stockholders was $4.6 million, or 29 cents per diluted share, compared with $3.9 million, or 25 cents per diluted share, a year earlier.