Green Dot’s Bank Holding Company Move

Green Dot CorporationOne of the (many) interesting pieces of information from the filing announcing Green Dot’s IPO plans was the announcement of Green Dot’s move to become a bank holding company. We’ve dug up a few more facts about GreenDot’s plan to become a bank holding company.

The Green Dot Bank Holding Company Application

The Green Dot Corporation is in the process of becoming a bank holding company by acquiring 100 percent of the voting shares of Bonneville, Bancorp, and thereby indirectly acquire voting shares of Bonneville Bank, both of Provo, Utah. Details of the planned acquisition were published in the Federal Register on Feb. 22, 2010. The Federal Register notes that comments regarding the Green Dot application must be received at the San Francisco office of the Federal Reserve Bank no later than March 18, 2010.

Copies of Green Dot’s application to become a bank holding company can be obtained by contacting Kenneth Binning, Vice President, Applications and Enforcement, Federal Reserve Bank of San Francisco.

The Bank to be Acquired by Green Dot

As noted above, Green Dot is seeking to acquire 100% of the assets of the voting shares of Bonneville Bancorp, and thereby indirectly acquire voting shares of Bonneville Bank, both of Provo, Utah. A brief review of the 2009 Financial Statements of the Bonneville Bancorp (available from the FFIEC) shows that the Bonneville Bancorp had almost no operating income in 2009 (approximately $136,000 of net reported income). As such, it is clear that Green Dot is acquiring Bonneville Bancorp for operating purposes only – not for the deposits or income of the bank.

How Will Green Dot’s Move Affect the Prepaid Card Industry?

We believe the move by Green Dot will have significant implications to the U.S. prepaid debit card industry. Here is how Green Dot explains the acquisition in their S/1 filing:

We believe this acquisition will increase the efficiency with which we introduce and manage potential new products and services, reduce the risk that we would be negatively impacted by changes in the business practices of the banks that issue our cards, reduce the sponsorship and service fees and other expenses that we pay to third parties, and allow us to serve our customers better and more efficiently through a more vertically integrated platform.

Green Dot currently issues their general purpose reloadable debit cards through Columbus Bank and Trust Company (including both the Green Dot prepaid MasterCard and the Green Dot prepaid Visa). The Walmart MoneyCard (which comprises a substantial portion of Green Dot’s general purpose reloadable portfolio) is issued by GE Money Bank.

The move by Green Dot to become a bank holding company will allow Green Dot to issue their own cards. By issuing their own cards, Green Dot will enjoy additional interchange and fee revenue, as well as avoid the risk that issuing bank partners will change their business practices or suffer losses or changes that could impact the issuance of cards.

Further, by controlling the issuance of their reloadable cards and other products, Green Dot will be able to more quickly adopt new product features and respond to market changes. It also puts Green Dot in an excellent position to consolidate parts of the fragmented prepaid card industry.

Banks that issue prepaid cards, such as Columbus Bank & Trust, MetaBank, and The Bancorp Bank, and that profit from the fragmented market, will likely see an impact from Green Dot’s move.

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