To some, prepaid cards are disposable — but to those who buy them online, the cards are keepers.
Green Dot Corp. said it is expanding its online services to attract more of those long-term customers.
While brick-and-mortar stores account for the lion's share of Green Dot's sales and remain the centerpiece of its customer-acquisition efforts, the online channel is making a nice contribution to growth.
"The Green Dot online division continues to pump out more and more cards, and it's become a very productive channel for us," Steve Streit, Green Dot's chairman, president and chief executive, said in an earnings conference call Wednesday.
The company has invested more in its online division in the past eight months, Streit said in a telephone interview Thursday.
Green Dot also hired a new general manager for the division and has used national television advertising to promote the ability to get its reloadable debit cards online.
The Internet is "a good new channel for us," Streit said. "We'll continue to invest in it."
The online channel and other features seem to be helping the company extend its cards' lifetime.
The number of active cards, or those that had a purchase, reload or ATM transaction during the previous 90 days rose 50% year over year in the third quarter, to 3.3 million. In the second quarter Green Dot had 3.2 million active cards.
Also, about 40% of all dollars loaded on to Green Dot's cards were handled through direct deposit in the third quarter, John Keatley, Green Dot's chief financial officer, said during Wednesday's call.
Increased card use bodes well for Green Dot, said Greg Smith, a managing director and senior research analyst who covers Green Dot for Duncan-Williams Inc. in San Francisco.
"We need to see that part of their customer base … continuing to load and use the cards more frequently," Smith said.
Churn is one of the challenges facing the prepaid card industry in general. Large numbers of users purchase a card for one-time use and never reload money to the account.
Green Dot, NetSpend Holdings Inc. and other prepaid card marketers have taken steps to extend the lifetime of their products by adding direct deposit, online bill payment and other features.
Green Dot, of Monrovia, Calif., also waives certain fees for consumers who load at least $1,000 on their cards or use the card 30 or more times each month.
Since it relies heavily on its retail distributors — of which Wal-Mart Stores Inc. is the biggest — Green Dot attracts a wide array of consumers that use its general purpose reloadable cards for short-term and long-term needs.
"That's the benefit of retail and something unique to that mass channel," Streit said in the telephone interview.
That is not the case with customers who buy cards through Green Dot's website, which attracts more long-term customers, Streit said.
"Online you don't have multiple segments," he said. "You really have a more narrow segment, people who are looking for a longer-term solution."
"It's a less dilutive segment if you will," he added.
The company is also trying to make its online account site more customer-friendly, Streit said.
Like most prepaid companies, Green Dot already has a website customers can use to check balances, review statements and set up bill payments.
"We're trying to figure out how to make those services even more personal and less cumbersome," Streit said.
Green Dot's bill-payment application, Fiserv Inc.'s CheckFree, is easier to find and set up than on most banking sites, Streit said. Green Dot is working on simplifying the service further for customers so that the "system learns the customer instead of the customer learning the system," he said.
Gil Luria, a senior vice president with Wedbush Securities in Los Angeles, said a focus on honing online capabilities is a good strategy for customer attraction and retention.
"It's a very important avenue of growth for the prepaid business, especially since a lot of the customers they're trying to get to are young consumers [and] are technologically savvy consumers," Luria said.
Green Dot also reported that the number of new cards it activated during the quarter increased 36% from a year earlier, to 1.5 million.
The total dollar amount loaded on to its card and reload products rose 69%, to $2.5 billion.
The increased card use helped Green Dot's revenue rise 36% from a year earlier, to $88.9 million. Its net income fell 14%, to $9 million.
The company also said regulators continue to review its application to purchase Bonneville Bancorp, a Provo, Utah, bank holding company. Streit said the company hopes to receive a decision by the end of the year.
Owning a bank would allow Green Dot to bring card issuing in-house and reduce costs associated with third-party relationships.
