After over a year in review, Green Dot’s (NYSE: GDOT) application to acquire Bonneville Bancorp (and Bonneville’s bank subsidiary) has been approved by the Federal Reserve. The move gives Green Dot a unique position in the prepaid card industry, with unprecedented control over all aspects of the issuance and distribution of prepaid cards and banking products.
Green Dot was required to go through a regulatory approval process to complete the transaction. As recently as October 2011, in their earnings announcement, Green Dot mentioned that the bank acquisition was still pending approval. Today, the Federal Reserve announced that Green Dot’s application was approved.
The Fed’s approval provides some insight into Green Dot’s application, including the following:
- The Bank will issue cards and settle transactions with other issuers of Green Dot cards. In the Fed’s decision, they mention that: “Green Dot proposes that Green Dot Bank issue Green Dot GPR cards linked to FDIC-insured accounts and provide settlement services. Green Dot Bank’s settlement services would include collecting funds generated from sales of Green Dot GPR cards and related products, distributing funds to issuing banks for cards serviced by Green Dot, and distributing funds to other banks for Green Dot Network acceptance partners. Green Dot would provide administrative services to Green Dot Bank, such as human resources, accounting and tax, marketing, and information technology, and infrastructure services under an intercompany service agreement.
- The Bank is small According to the Fed decision, Bonneville Bank has assets of around $60 Million, and is the 60th largest bank…. in Utah.
- The decision wasn’t unanimous One of the Federal Reserve members dissented, stating “I am not in favor of approving this application. As a general matter, I have concerns about business plans that focus narrowly on one or a few products. Companies with narrow business plans face risks that are different than those faced by more diversified companies and are more vulnerable to unexpected shocks. In this case, I have specific concerns about the risks presented by Green Dot’s proposal to implement a business plan at Green Dot Bank focused on the issuance of general-purpose, reloadable prepaid debit cards (“GPR cards”). Green Dot’s proposal to implement a business plan at Green Dot Bank predominantly focused on issuing GPR cards would directly tie the future prospects of Green Dot to success in the specialized market for prepaid debit cards. The prepaid debit card industry is subject to various risks, including the possibility that the technology currently employed by industry participants could become obsolete, that consumers’ demand for prepaid debit cards as an alternative to more traditional banking products and services could decline, that potential legislative or regulatory changes could reduce or
eliminate the profitability of issuing prepaid debit cards, and that competition in the prepaid debit card industry may increase …”
Whether the approval is a good decision or a bad one by the Fed, one thing is clear: other prepaid program managers that are reliant on third party banks will be at a competitive disadvantage to Green Dot and Green Dot Bank.
Read the full Fed opinion below: