GreenDot Corp. (NYSE: GDOT), the first major prepaid debit card company to go public in the U.S., posted strong earnings this week, reporting a third-quarter profit that topped Wall Street estimates. The results were boosted by a rise in card and interchange revenue. GreenDot forecast an 80 percent increase in gross dollar volume for 2010. As the economics behind prepaid debit cards are a relatively new concept to some readers, we take a look behind the numbers to see what drove this growth for GreenDot.
The economics of prepaid debit card companies are relatively straightforward. For the most part, revenue is driven by the number of active cards that are issued and actively used by customers. Of course, the P&L is not quite so straightforward, but the key drivers of growth and revenue is based on this simple concept.
As GreenDot puts it in their recent 8K, “We review a number of metrics to help us monitor the performance of, and identify trends affecting, our business. We believe the following measures are the primary indicators of our quarterly and annual performance….” The measures include: the number of general purpose reloadable (or “GPR”) prepaid cards issued, the number of cash transfers, the number of active prepaid cards, and gross dollar volume.
GreenDot experienced tremendous growth in each of these four measures. The result: strong earnings.
Here’s how GreenDot did in each of the four measures, over the most recent Quarter as well as the 9 Month period ending September 30, 2010.
Increase in the Number of Reloadable GreenDot Cards Issued
GreenDot tracks and reports the number of general purpose reloadable prepaid debit cards that were activated each quarter. The “Number of GPR Cards Activated” reported by GreenDot is the total number of GPR cards sold through GreenDot’s retail and online distribution channels that are “activated” (and, in the case of GreenDot’s online channel, also funded) by cardholders in a specified period. GreenDot activated 1.5 million and 1.1 million GPR cards in the three months ended September 30, 2010 and 2009, respectively, and 4.7 million and 2.9 million GPR cards in the nine months ended September 30, 2010 and 2009, respectively.
Increase in the Number of Cash Transfers
GreenDot also reports the “Number of Cash Transfers” each quarter. This number represents the total number of GreenDot MoneyPak and point of sale swipe reload transactions that GreenDot sells through their retail distributors in a specified period. GreenDot sold 6.9 million and 4.5 million MoneyPak and POS swipe reload transactions in the three months ended September 30, 2010 and 2009, respectively, and 19.2 million and 12.1 million MoneyPak and POS swipe reload transactions in the nine months ended September 30, 2010 and 2009, respectively.
Increase in the Number of Active Cards
The third major metric used by GreenDot is the “Number of Active Cards”, a number that represents the total number of general purpose reloadable debit cards in their portfolio that have had a purchase, reload or ATM withdrawal transaction during the previous 90-day period. GreenDot had 3.3 million and 2.2 million active cards outstanding as of September 30, 2010 and 2009, respectively.
Increase in the Gross Dollar Volume Loaded
The final metric used by GreenDot to track their performance is “Gross Dollar Volume” (or “GDV”), a number that represents the total dollar volume of funds loaded to GreenDot’s general purpose reloadable debit cards and reload products. GreenDot’s gross dollar volume was $2.5 billion and $1.5 billion for the three months ended September 30, 2010 and 2009, respectively, and $7.7 billion and $4.0 billion for the nine months ended September 30, 2010 and 2009, respectively.
The result of the growth of all of these metrics was a substantial increase in company gross revenues.
Track these numbers, and you’ll understand how a prepaid card program is growing.