I have seen the light, and it is shining on Green Dot.

In a number of posts, I wrote that Green Dot’s claim to the contrary notwithstanding, that there was no real verifiability to the promise that they would not attach credit products to their cards. Green Dot has a presentation that it is circulating on their business plan, and it even states that there is no intention in the “initial plan” to offer credit.

I was suspicious.  The words “initial plan” seemed tentative, at best. They didn’t do much to allay my fears about the makeup of their board, which does include two members with ties to payday lending.

But I’ve changed my mind. Yesterday, I was able to talk with Green Dot’s Steven Streit and Lewis Goodwin on a video (more…)

Glowing third quarter results from EZCorp (EZPW)on Thursday followed similar news from Cash America (CSH) earlier in the day, hinting that the sudden restriction of credit from banks is pushing more consumers to their local pawn shop. First Cash Financial Services (FCFS) had the same story on Wednesday.

EZ Corp reported a net income of $20 million, which was up 39 percent from the same quarter a year ago. US pawn lending drove a lot of that gain. Operating income rose 36 percent in domestic stores. Granted, EZCorp bought 13 new stores, but according to their conference call, most of those new stores were only integrated during the last part of the year. So, as bright as things are for EZCor, it may get even brighter.

A CEO of General Motors once said that “what’s good for General Motors is good for America,” but that insight would (more…)

A story out today in ESPN identifies the use of prepaid cards as an emerging enforcement problem. In some instances, less-than-scrupulous actors are willing to funnel cash to players through these cards.

Slightly different than a loan, these allow an agent to offer a constant stream of cash by giving a prospect or a prospect’s family member a card with a cash value that can be constantly stuffed with more money, not unlike an actual bank account. The kicker: As of now, the NCAA has no way of tracking the transaction.

“That’s the latest one I’ve heard,” said one coach.

This is a new iteration on an old practice. Sports agents have been in trouble in the past when they have provided financial support to families.  The only difference is that then it was harder to cover things up. Witness what happened (more…)

Cash America (CSH) reported a strong (indeed, a “blow-out!”) quarter this morning, and although their stock is down this morning, their success would indicate more activity for payday and pawn lending. Their volume is up, which certainly contrasts with the lamentations about low loan demand that we have heard from the big banks, and they are growing their customer base is expanding.

This is really not a great sign for our economy. It points to the poor alternatives that people face once they move out of the banking system. More people are making that move, unfortunately.

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NetSpend announced plans last week to sell shares through an initial public offering.This is an important moment in the prepaid field, and when coupled with the Green Dot IPO this week, it should signal that the prepaid card market is maturing.

We know that prepaid cards matter, because they may be the main financial tool for the unbanked market in the near future. The FDIC says that 60 million adults, or about one in four in the US, are unbanked. Even though these individuals don’t use a bank, they still make payments. In 2009, they sent about $1.1 trillion. That’s a lot of money. Prepaid cards are only beginning to reach this market. According to NetSpend, about one in six unbanked has a prepaid card for some purpose. NetSpend has more than 2 million card accounts right now.

About NetSpend

There are two private equity firms with existing investments in NetSpend: JLL Partners and Oak Investment Partners. Oak has a controlling stake. JLL catches my attention, though.

JLL Partners is a mid-stage investment in New York. JLL has some of the characteristics of Sequoia, a private equity firm that has a stake in Green Dot. Like Sequoia, JLL is not focused on one sector.  Aside from NetSpend, they have positions in an overhead door company, a community bank, an aerospace manufacturer, and a pharmaceutical research firm.   Actually, to say that they have no focus is not quite true, because they are very active in health care and pharmaceuticals.

Still, they are like Sequoia in that they do have exposure to more than one firm in the financial services market, and (more…)