Green Dot Uses Mobile to Trim Plastic from Prepaid Reloads

To eliminate its fraud-prone MoneyPak reload cards, Green Dot introduced a swipe-to-reload system last year that seemed more streamlined but added a new requirement — the customer had to have the card present to top it up with cash.

After the MoneyPak phased out, Green Dot customers could reload their prepaid accounts by swiping their prepaid card at a register and then handing over the proper amount of cash. Today, Green Dot provided a new option that eliminates the need to even swipe the plastic card. The new system lets users connect to Green Dot's website through a mobile phone to generate a bar code, which a store's clerk can then scan to access the card account for reloads.

"It seems this technology is being set up to support a mobile wallet functionality in the future," said Maria Arminio, president of Avenue B Consulting Inc., a Redondo Beach, Calif.-based payments management consulting firm.

The earlier MoneyPak reload system, which allowed consumers to simply buy a reload card and link it to their accounts from a home computer, worked without the user needing to carry the prepaid card at the time of purchase but was so prone to misuse that it became a plot point in Netflix's prison drama, Orange Is the New Black. The fraud stemmed from people being able to buy MoneyPaks and then read off their PINs over the phone, making it possible to funnel money into prison, for example.

Eliminating the MoneyPak improved security, but it also removed the option to reload an account without having the prepaid card in hand.

The new mobile-based process also aligns with Green Dot's growing expertise in mobile risk management. Its GoBank mobile bank account uses a smartphone's location data to sniff out fraud schemes related to mobile check deposit, the company explained in a presentation at SourceMedia's Card Forum & Expo last year.

Green Dot's use of a bar code for reloads "is easier for the retailer to recognize ...  and to make sure it is legitimate," said Madeline K. Aufseeser, senior analyst with Boston-based Aite Group.

However, Green Dot is "playing catchup" to a certain extent in trying to shift its prepaid card users to mobile, Aufseeser said. "The whole market has been moving in that direction and this bar code is only for loading funds, not for making purchases."

Green Dot did not make an executive available for comment prior to deadline. "Our goal is to utilize Green Dot's latest cutting-edge mobile technology and marry it to Green Dot's legacy retail point of sale technology to create a massive network of retail locations where instant cash movement can happen for any number of purposes," Green Dot Network general manager Helena Mao stated in an Aug. 4 press release.

The mobile reload option also reduces the risk that the customer's card data can be skimmed if used at a compromised register, or if the card itself is outright stolen. It also makes Green Dot's products more palatable as emergency accounts if another bank account is compromised.

"We all have our credit cards compromised, so emergency cash is becoming top of mind and it is something that weighs on consumers," Arminio said. By adding mobile reload capabilities, more consumers may begin to view prepaid products as an easy way to have funds available in a pinch, she said.

Earlier this year, Green Dot introduced the strategy to begin offering credit lines to its customers via a secured credit card and an unsecured line of credit.

Green Dot delivers its second quarter earnings report at 5 p.m. ET on Aug. 4.