Green Dot Corp. is hoping consumers of the future will sign up for credit cards at the same checkout counters where they are swiped, and almost as easily.
The Monrovia, Calif., company is best known as a marketer of prepaid debit cards sold at pharmacies, drugstores, and other retailers.
But last month, with little fanfare, it began testing the Green Dot Visa Gold Card, with a line of credit for up to $200.
To get the card, consumers must purchase a package at one of Green Dot's retail partners and then call the company to provide their Social Security number and other information. There is no minimum credit score; the only prerequisite is that Green Dot can verify the customer's identity.
"It's the first time ever that consumers without regard to their past credit history and their past problems can - without a whole a lot of fuss - get a real credit card and help them enter the mainstream credit society," said Steven Streit, Green Dot's president and chief executive. "If it works, it revolutionizes the entire credit card acquisition game."
Consumers can buy the packages for $19.95 each at 200 retail stores. A $70 annual fee also is collected at the checkout counter, and Green Dot sends the card in the mail after checking the customer's identity. The interest rate is fixed at 11.9%, with a standard grace period of 25 days. Their is also a $4.95 monthly fee.
Observers said they were unfamiliar with the product, but upon learning about it, they called the fees high and said Green Dot was at risk of adverse selection.
"The people they are going to get will be those who are in very desperate situations and probably have a FICO score below 600" and are likely to default, said Dan Schatt, a senior analyst at Celent LLC in Boston.
According to Mr. Streit, First National Bank of Fort Pierre, S.D., issues the cards in the pilot test and "shares the receivables" with Green Dot. The $531 million-asset bank did not return calls.
The trial would run until February, he said; if Green Dot continues to offer the cards after the test, it will increase credit lines for cardholders who have demonstrated their creditworthiness. The company is reporting payment histories on the cards to the three major credit bureaus - Equifax Inc., Experian Information Solutions Inc., and TransUnion LLC - he said.
But Mr. Schatt called the program "a very expensive way to get credit history, and by the way, it's not the only way."
When the fees and interest are factored in, the card costs as much as a payday loan, he said.
Philip J. Philliou, a former executive of MasterCard Inc., said Green Dot reminded him of NextCard Inc., a San Francisco issuer that was known for its "online instant decisioning" and signed up cardholders at a record rate early this decade.
"Their instant approval process caught up with them as it became a sort of online slot machine, tempting both criminals and those in dire financial straits to keep applying until they were approved," said Mr. Philliou, who is now a consultant. NextCard filed for bankruptcy protection in 2002.
Mr. Streit said Green Dot is mitigating the risk, in part by taking things slowly. For now it is selling the product at only a small fraction of the 55,000 locations where it sells prepaid cards, he said.
As for the fees, he said the credit card is no more expensive than those offered in the subprime market.
Jennifer Tescher, the director of the Center for Financial Services Innovation, an affiliate of Chicago's ShoreBank Corp. that seeks to increase access to financial products for the underbanked, said she had mixed feelings about Green Dot's program.
"I think the concept of 'productizing' credit cards is fascinating, but it's less interesting if you charge such high fees to make it available to anyone who walks through the door," Ms. Tescher said.
Mr. Streit said that after a year and half of studies, his company came up with a "number of mathematical formulas and acquisition strategies" that would make the program profitable. "This is the time to see if all our theories and strategies work."
He would not say which retailers are selling the packages, because he said he feared that researchers and competitors would buy them and skew the data from the pilot test.
Retailers that sell Green Dot's prepaid cards include Cumberland Farms Inc., CVS Inc., Dollar General Corp., Eckerd Corp., Food Lion LLC, Hess Corp., Kum & Go LC, Pantry Inc., Pathmark Stores Inc., RadioShack Corp., Rite Aid Corp., Sunoco Inc., and Walgreen Co.
This week a reporter visited a CVS store and a RadioShack in New York. Each sold only prepaid products from Green Dot.
