Steve Streit's comments in his 2nd quarter earnings call contained a number of interesting facts on his company and on the prepaid industry in general. It is worth a read, because it stands out from what most earnings calls suffer from: too much boiler plate and too little commentary. Streit
doesn't refer to "competitors;" instead, he names names.
He finally had news on GoBank. Green Dot has been quiet for too long about how well its answer to checking is doing. He says it was a function of scale. GoBank just wasn't big enough to be impactful to the company's overall performance.
1) GoBank is retaining customers for a long time, and those customers are using their cards extensively. Sixty percent say GoBank is their primary transaction account. Seventy-five percent of initial loaders end up making a second load. On average, they spend $600 per month and make approximately 19 transactions.
2) GoBank makes money on the back end. When Green Dot designed GoBank's pricing, they shied away from charging a purchase fee and they let customers choose their monthly fee. But that has not turned out to be a problem because retention is so heavy. The company says that once customer accounts remain active for more than 90 days, attrition is relatively low. Streit speculated that retention rates could be as long as three or four years, in which case they would expect to generate approximately $300 in revenue and $60 in profit per account.
3) It is a young cohort. More than half of active accounts are under the age of 34. That correlates to the finding that many use it as their primary account. But that leaves open the possibility that they will lose a high share of those individuals once their financial lives become more robust. Sooner or later, millenials are going to start to form households and build assets. At some point in time, they will want more than a card and an app.
4) They aren't losing business to Amex's Serve. Serve is now located side-by-side with a Green Dot product in most major retailers. Green Dot activations are increasing by double digits. Streit cites "independent retail sales data" which says that Serve sales are actually slowing down. The same independent third-party sales data source informs Streit that Gren Dot outsells Serve by a 17 to 1 ratio at a top-5 retailer.
5) Streit calls out his competitors. "So first, let's talk about competition. Competitive concerns are certainly understandable with so many strong competitors in recent years all aiming their guns directly at Green Dot. Chase Liquid, American Express, U.S. Bank, BB&T, Regions Bank, Western Union, MoneyGram, NetSpend, Vanilla Visa, the Suze Orman card, the Magic Johnson card and the PayPal brand prepaid cards, just to name a small few. All of the brands I just mentioned and perhaps over 1,000 other prepaid programs I haven't mentioned, have all worked hard to secure distribution and/or achieve notoriety within their marketing segment. But not one, literally not one, has gained traction against Green Dot."
6) He thinks that WalMart will renew their contract in 2015. He attributed that assumption to a number of developments that reflect a relationship that is deepening over time. First, Streit announced that Green Dot and Walmart extended their open loop gift card contract. They have agreed to partner on a new bill pay service for credit card accounts. The Credit Card Bill Pay service will be offered right at the register. Consumers will be able to use cash or PIN to pay their credit card bill on the same day. In June, Walmart begain to offer the new Green Dot Everyday card.
7) Some of the other guys are quietly dropping out of prepaid. Liquid is no longer on display inside branches. Western Union's Card, which was low-cost and available in 50,000 stores, is now being outsourced by WU to NetSpend. Magic and Suze Orman have exited prepaid altogether.
8) They are putting a good face on the transition away from MoneyPak. For the quarter ending on March 31st, reload fees constituted 34.6 percent of the company's overall revenues. Next year, MoneyPaks will be a thing of the past. The company has had too much trouble with fraud. So even though fraud was taking place with less than one percent of MoneyPak sales, the headaches from compliance and customer refunds are no longer worth the ten to fifteen million dollars in revenue that it contributed on a monthly basis.
That means register-reloading, which was already possible at WalMart, Dollar General, Dollar Tree, and a few other retailers, will now be the new standard. Green Dot gets more sleep as it gets to worry less about fraud.
The odd thing about those announcements is that they came at a moment when people were starting to think that Green Dot was slipping. Green Dot's troubles with its MoneyPak were known prior to the meeting.
But that seems to have been lost in the shuffle. The company seems to be moving to a new emphasis on transactional revenue that is driven by longer-term relationships. To me, that's good news. From a business perspective, it is a sign that the prepaid business could be more robust than recent events have indicated. But more importantly, it also means that businesses will see more evidence that consumers and businesses win together.