Yesterday, the U.S. Treasury announced a pilot program in which certain low- and moderate-income Americans will be provided with an ability to use a prepaid debit card to receive the proceeds of their federal tax refund. In the pilot program the Treasury Department will mail letters to 600,000 low- and moderate-income individuals nationwide. The letters will invite these taxpayers to consider activating a MyAccountCard Visa® Prepaid Debit Card in time to have their 2010 federal tax refund direct deposited to the card. The MyAccountCard is provided by Green Dot Corp. (NYSE: GDOT). Here’s why its a big deal.
In the prepaid debit card industry, the major drivers of profit are new card activations, the number of active cards, and transactional volume. Typically, the prepaid card program manager (in this case, Green Dot Corp. is the program manager of the MyAccountCard program) only sees some of the profits from the new card activations and card usage, as the program manager needs to split some of those fees with the issuing bank. However, in the case of the MyAccountCard program, Green Dot Corp. may be both the program manager and the issuing bank.
The MyAccountCard is the first prepaid card program (that we are aware of) that is issued by Bonneville Bank. Green Dot Corp. is in the process of purchasing Bonneville Bancorp and it’s subsidiary bank for $15.7M dollars. The transaction was expected to close in the Fall of 2010, although no official confirmation has been issued. (See Green Dot Corp’s Bank Holding Company Move).
If Green Dot’s acquisition of Bonneville Bank has (or will) be completed, Green Dot stands in an excellent position with it’s partnership with the U.S. Treasury – one that no other U.S. prepaid issuer or program manager is in a position to easily replicate.
By winning the partnership with the U.S. Treasury, Green Dot potentially adds 600,000 new cardholders in the first quarter of 2011. But those cardholders aren’t simply getting the cards for convenience purchases (a reason that a large number of prepaid customers get cards is for one-time purchases, such as to buy something on the Internet). Instead, the cardholders are receiving a direct deposit of what can be a substantial sum of money – their Federal Income tax refund. (last year, according to some sources, the average Federal tax refund was almost $3,000, although the lower income demographic MyAcccountCard cardholders will likely see lower refund amounts).
Prepaid card activations typically spike upwards during tax refund season. Last year, according to Green Dot, Green Dot’s relationship with TurboTax accounted for approximately 5% of active cards during Q2 2010 (and more than that in Q1). The numbers dropped off in Q3 (with around 2% of active cards in June 2010) as cardholders took their tax refunds off the cards.
We expect this program to be a big success for Green Dot.
To learn more about the MyAccountCard product, visit the MyAccountCard website.