Green Dot Corp. is licking its lips over banks’ new debit card fees, but the prepaid card company still does not 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. Some observers expect the new fees to drive many customers away from using their debit cards in favor of using 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 chairman and chief executive, said in an Oct. 27 interview.
Streit 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.
New Federal Reserve Board cuts in interchange fees that went into effect Oct. 1 slashed how much issuers collect from merchant acquirers when customers buy things with their debit cards. Issuers have been raising prices related to their checking accounts as a result of the change, saying they need to offset 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 (
Green Dot, which went public last year, sells prepaid cards that largely are exempt from the new regulations. The Monrovia, Calif.-based company sells cards mostly to underbanked consumers who do not have or regularly use traditional bank accounts. Its customers can load funds onto the prepaid card accounts 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 already is 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 Oct. 27, said new card activations and increased use 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 a year earlier, to $13.3 million, or 30 cents per diluted share.
Green Dot said consumers activated about 1.96 million of its general purpose reloadable debit cards in the third quarter. That represents an increase of 33%, or 490,000, from the previous year.
But the company also is 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 during a conference call Oct. 27 that he believes Green Dot has “enough momentum to overcome the Intuit loss.”
The company’s plans for expansion into the mainstream financial services industry also are 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,” John L. Keatley, Green Dot chief financial officer, 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.
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