Green Dot Corp. is licking its lips over banks' new debit card fees, but the prepaid card company still doesn't know quite how large its eventual meal will be.
Many large banks are charging their customers more for using debit cards or maintaining checking accounts in the wake of new federal regulations. The new fees are expected to drive many customers away from their debit cards in favor of either credit or prepaid cards.
As the largest public prepaid marketer, Green Dot seems well poised to pick up business from current bank customers who cannot afford or do not want to pay new fees for using their checking accounts.
"Is it helpful to us? The answer is yes," Steve Streit, Green Dot's chairman and chief executive, told American Banker in an interview on Thursday afternoon.
He would not quantify how much business Green Dot expects to gain as a result — if a prediction is even possible yet. Many of the biggest banks have started informing their customers about their new fees, but will not start actually charging them until December or January.
"This is a story that will need to play out over time," Streit says.
Federal rules that went into effect this month slashed the interchange fees that banks collect from merchants when customers buy things with their debit cards. Banks have been raising prices related to their checking accounts as a result of the rules, saying that they need to off-set the projected loss of more than $5 billion of annual revenue.
Last month, Bank of America Corp. said that in January it will start charging customers $5 a month for using their debit cards. Citigroup Inc. has said that it will not charge debit card fees, but the bank is raising the monthly fees on its checking accounts to $10 to $15 per month.
Green Dot, which went public last year, sells prepaid cards that are largely exempt from the new regulations. The Monrovia, Calif., company sells cards mostly to underbanked consumers who do not have or regularly use traditional bank accounts. Its customers can load money onto the prepaid cards and use them like regular debit cards, but the cards are not linked to a traditional checking account.
Now analysts expect Green Dot to pick up some business from newly underbanked customers. The company is already benefiting from the prepaid card industry's expansion.
Green Dot is growing "faster than the category and is doing very well," says Wedbush Securities analyst Gil B. Luria. "It's adding a lot of customers. It's adding more and more funds for these customers. The growth is still phenomenal."
The company, which reported its third-quarter earnings on Thursday, said new card activations and increased usage by existing customers helped boost its third-quarter profits. It posted a 30% year-over-year increase in operating revenue, to $115 million. Net income grew 48% from the previous year to $13.3 million, or 30 cents per diluted share.
Green Dot said about 1.96 million of its general purpose reloadable debit cards were activated in the third quarter. That represents an increase of 33%, or 490,000, over the previous year.
But the company is also facing some setbacks. A two-year deal with Intuit Inc. that allowed users of its TurboTax software to receive their tax refunds on a Green Dot card is expiring, according to Luria.
Streit told analysts on a conference call Thursday that he thinks Green Dot has "enough momentum to overcome the Intuit loss."
The company's plans for expansion into the mainstream financial services industry are also in limbo. Green Dot is still waiting for the Federal Reserve to approve its 2010 deal to acquire Bonneville Bancorp of Provo, Utah. The purchase would end Green Dot's dependence on the bank partners that issue its prepaid cards.
"We think that becoming a bank holding company, which as you know is a very expensive, very long-term project that we've undertaken, is a key initiative," Green Dot chief financial officer John L. Keatley said during the conference call.
Analysts downplayed the Fed's delay in approving Green Dot's bank deal
"What is happening right now is the Fed governors are dealing with a global financial crisis, so they don't have the time to all get everyone in a room and talk about bank charters," Luria says.