Fed Approves Green Dot Acquisition

The Federal Reserve gave its approval to Green Dot’s acquisition of Bonneville Bancorp on Friday.

Green Dot will pay $15.7 million for Bonneville. The new entity will be renamed Green Dot Bank.

This is a significant event for Green Dot because it will allow them to capture more of the income generated from the transactions made on their prepaid cards. In the past, Green Dot has had to wait in line for a share of the interchange. Green Dot partnered with Synovus and GE Money Bank, but each took their interchange fees.

More interchange fits with the business model at Green Dot. The company tries to incent card holders to make more transactions. Currently, customers can avoid a monthly fee if they conduct about one transaction per day – either an ATM withdrawal, a point-of-sale purchase, or some other activity. Purchase functions generate interchange.

Green Dot Bank, by virtue of its small size, will capture more interchange than some of the big banks in prepaid. Green Dot Bank will be exempt from the Durbin Amendment.

The Fed put some tight restrictions on Green Dot Bank to make sure that their deposits are well protected. The Fed said that Green Dot Bank had to maintain a Tier One Capital ratio of at least 15 percent for the next five years. That is almost twice as high as the standard rate currently au courant at the regulatory agencies. Green Dot has to put $13.6 million into Green Dot Bank prior to beginning business. Bonneville had slightly less than $30 million in deposits.

Fed Governor Elizabeth Duke disagreed with the decision to grant approval. Duke said that she had concerns because of the narrow scope of the intended activities for Green Dot. She said that Green Dot Bank is going to become dependent on the demand for GPR cards, which may wither if unforeseen changes in technology or new regulations come into place that make the cards unattractive to consumers.

Green Dot’s relationship with Wal-Mart appears to give her pause, as well. “Green Dot currently relies on a single retail partner for a large majority of its revenues,” she said, “and a loss of the relationship would have a materially adverse impact on Green Dot’s revenues.”