Green Dot Earnings Call: A Prepaid Card Tutorial

Green Dot Corporation GDOTOn August 12, 2010, Green Dot Corporation (NYSE:GDOT) had its first earnings conference call. The conference call, of course, included lots of discussion about Green Dot’s second quarter 2010 earnings and outlook. The call also included some excellent information about the prepaid debit card industry. Analysts, investors and others who are interested in covering or better understanding this relatively new industry should listen to the Green Dot Q2 earnings call.

In the conference call (which is available here), Steven Streit, the President and CEO of Green Dot, and one of the founders of the prepaid debit industry, spends quite a bit of time giving an overview of the prepaid industry as well as an introduction to Green Dot.

The call started with a brief introduction to Green Dot’s operations, strategy and culture, and their mission: to provide millions of Americans with access to convenient and low cost bank accounts and banking products.

Streit discussed how Green Dot had to make some tough decisions to achieve their objective of providing low cost products that served
customer needs. The decisions, ultimately, resulted in increased account acquisitions and increased profits and margins.

Streit further discussed the key areas that drive Green Dot’s revenue (each managed by separate teams within Green Dot):

  • Green Dot branded products (including the sale of Green Dot products at retail stores, including the new Circle K relationship)
  • Private label products, or cards that are branded in the name of the private label partner, such as the Wal-Mart Moneycard)
  • Green Dot Interactive, a relatively new group formed to promote the sale and use of Green Dot cards online, including the Green Dot MasterCard and Green Dot Visa Card available on the Internet)
  • The Green Dot Load Network (the nation’s largest prepaid card reload network, which allows other prepaid cards to be loaded by cash using MoneyPaks purchased at a wide variety of retailers).

A number of growth drivers for the prepaid industry in general and Green Dot in particular were also discussed, including:

  • Secular trends causing consumers to migrate to debit, including the tight credit markets and increasingly expensive bank fees.
  • Increasing and expanding retail relationships, including at Wal-Mart (which accounted for 64% of GDOT revenue in Q2) and the new Circle K relationship.
  • Formation of the Green Dot Interactive Unit, to market and distribute Green Dot cards through online channels. The Interactive Unit was just an idea 18 months ago, but is now an active contributor to the GDOT card base.
  • New product development with a focus on increasing customer acquisition and retaining customers.
  • Acquisitions and strategic investments, including the purchase of Bonneville Bancorp and it’s subsidiary for $15.7M dollars (which is expected to close in Q4 2010, pending regulatory approvals). The Bonneville Bancorp acquisition is intended to increase GDOT’s efficiency in launching new products, reduce risk, reduce sponsorship and service fees, and to service customers better through a more vertically integrated platform.

During the Q&A session, several items of interest were discussed, including:

  • The seasonal affect that tax season has on active card numbers. In particular, Green Dot’s relationship with TurboTax accounted for approximately 5% of active cards during Q2 (and more than that in Q1). The numbers drop off in Q3 (with around 2% of active cards in June 2010) as cardholders take their tax refunds off the cards.
  • Cardholder retention and profitability. Streit claims that Green Dot is profitable from the time a customer buys a Green Dot card off a retailer’s shelf. However, cardholder retention is a segmented business. For retail sales, many cardholders purchase a prepaid card for a single or specific use (e.g., for a trip, to make an online purchase, etc.). Streit analogized such users to rental car users (who rent a car for a specific purpose, and then may not rent one again for months). Green Dot’s ideal customer, however, is one who continues to use it and reload it, such as customers who use the cards as a bank account or credit card substitute. Green Dot is continually working on ways to attract and retain these customers (which account for about 1/2 of Green Dot’s active card base).

The conference call had a number of other items of interest to analysts or researchers covering the prepaid space, including discussions of regulatory reform, the Durbin amendment, etc.

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