The prepaid card marketer Green Dot Corp. is putting more muscle into its expansion beyond retail checkout lanes.
The Monrovia, Calif., company has signed Rite Aid Corp. as its first client for a payroll card program the drugstore chain plans to offer its employees. The deal was announced Thursday, a week after Green Dot said it hired a former JPMorgan Chase & Co. managing director to head a new division for running prepaid card programs for government agencies.
Prepaid payroll and government benefit cards are new focus areas for Green Dot, which has largely relied on merchants like Wal-Mart Stores Inc., CVS Caremark Corp. and 7-Eleven Inc. to sell its reloadable cards.
Analysts say Green Dot has infiltrated most of the obvious large partners, putting emphasis on its need to improve in-store marketing and add new distribution channels.
"We're eager to actively begin pursuing relationships with federal, state and local governments to help solve their disbursement challenges while helping recipients enjoy the convenience and safety that Green Dot products offer," Steve Streit, Green Dot's chairman, president and chief executive, said during a conference call with analysts Thursday.
In January, the Treasury Department said it had selected Green Dot to help manage a test program that allows tax filers to receive their refunds on a prepaid card.
Payroll programs, such as the one Green Dot is doing for Rite Aid, could also help drive growth, said Gil Luria, an analyst at Wedbush Securities LLC.
"They're growing very fast and they're only just starting to tap into two very large incremental opportunities," Luria said.
These channels could help the company attract more long-term users — a struggle for the prepaid card industry. Often consumers open a prepaid card for specific purposes and use it only a few times.
Green Dot and its biggest competitor, NetSpend Holdings Inc., have been fighting churn by promoting direct deposit, online bill payment and other services to entice continuing use of their cards.
Direct deposit accounted for about 58% of all money loaded on to Green Dot cards in the first quarter, Streit said.
He said customers are also loading larger dollar amounts and loading more frequently, which helped Green Dot's revenue surge 26% from a year earlier, to $117.3 million.
First-quarter card activations — an important metric that had shown signs of softening in the previous quarter — jumped 23% from a year earlier, to 2.21 million, surpassing analysts' estimates.
"Green Dot put nonbelievers to shame last night as it delivered an impressive quarter across all card metrics," Andrew Jeffrey, an analyst with SunTrust Robinson Humphrey, wrote in a research note published Friday.
But Green Dot's earnings missed analysts' estimates. First-quarter net income fell about 1% from a year earlier, to $12.7 million.