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Green Dot

Green Dot Plans Second IPO

Adam Rust's picture

Posted November 9, 2010

Following on an earnings report that exceeded everyone's expectations, Green Dot announced that it will offer another round of shares to the public.  A date for the IPO was not given.

Green Dot completed an IPO this summer. Its shares found a price of approximately $34 per share. Since then, Green Dot shares have been on a roll. Today they are trading at a range between $53 and $54.

The IPO will not dilute the value of existing shares. The company says it expects to generate about $100 million

Bad Strategy at MetaBank and NetSpend

Adam Rust's picture

Posted October 14, 2010

NetSpend and MetaBank have ignored critics of their products. Now they are paying the price.

There is a lesson in corporate strategy to draw from this situation. It doesn't make sense to put so much effort into a financial product, given the degree of regulation associated with the banking sector, and then ignore the reaction of consumer groups and flout your regulator.

The risk is evident. MetaBank has seen its shares lose $39 million in value in the last 24 hours. NetSpend was ready to do an IPO that was expected to bring $200 million to the firm. We don't know how things will go tonight, but it seems to safe to assume that they are going to come back with tens of millions of dollars less in equity.

There are other companies in the prepaid space that do things better. Green Dot made an aggressive outreach to

This Week: NetSpend IPO

Adam Rust's picture

Posted October 12, 2010

Goldman Sachs will run an initial public offering for shares of NetSpend this week. With the exception of two million shares already held by investors that will be put into the IPO, it will bring lots of new equity to the company.

This has been a coming-out summer for alternative financial services companies. NetSpend filed an S-1, the form used by potential IPO registrants to demonstrate their value to shareholders, on July 15th. Green Dot had an IPO earlier in the year. Buy Here-Pay-Here used care retailer Drive-Time had said that they would offer shares. Although DT did subsequently withdraw their IPO, the underlying fact remains: in a stagnant IPO marketplace, investors are making an exception with companies in the "shadow banking" system. NetSpend differs from other prepaid card companies (Green Dot, Blackhawk, Rush Card) in that it comes closes to providing a vertical set of services. NetSpend has to partner with a bank, but short of that, it does just about everything else.

I like to evaluate a prepaid card company by how it makes its money. There are plenty of ways to pick

Seeing the Light on Green Dot

Adam Rust's picture

Posted July 27, 2010

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 Interlocks to Green Dot

Adam Rust's picture

Posted June 18, 2010

Green Dot is a closely held company with a set of principal shareholders that have contacts throughout the narrow universe of the prepaid debit card market. Green Dot has filed an application to buy Bonneville Bank, a small one-branch state-chartered bank in Utah. The Federal Reserve is currently reviewing that application. There has been some discussion about the role of Wal-Mart in this transaction. Will this allow Wal-Mart to effectively own a bank? That is a valid question, but I believe that there is another pressing issue that needs to be resolved.

I think that this transaction could give new vitality to the payday lending industry. By giving the owners of Green Dot the rights to an unsullied bank charter, the Fed could empower high-cost subprime lenders to dramatically increase the scope of their business. This transaction involves a small dollar bank, but it carries the potential to impact millions of households.

The unbanked and underbanked market is vast. Some estimates put the size of this group at as large as 110 million, depending upon how it is defined. Many of these households are unbanked because they haven't honored their commitments. However, others are underbanked simply because they don't have a substantial credit history. Thin file and no-file consumers have a hard time getting a bank account, let alone a credit card, even though they have never defaulted on a loan. It is unfortunate that

Linking Green Dot to Pay Day Lending

Adam Rust's picture

Posted June 17, 2010

In its application to the FRB of SF, Green Dot says that its business plan for its acquisition of Bonneville Bank does not include any intent of offering credit to consumers that use its debit cards.  I hope that this is true. High-cost credit lines are the biggest problem with the cards at MetaBank. When combined with direct deposit, these credit lines provide the financial structure for a new iteration of payday lending.

I know what Green Dot says. At the same time, I don't have peace about it. One of the things that worries me is the membership of their Board of Directors.

The Spectre of Wal-Mart Haunts the Small Town Bank

Adam Rust's picture

Posted June 14, 2010

There is a spectre haunting your local community bank - the Spectre of Wal-Mart.

Imagine there is a Wal-Mart Bank. Can you see the little man dropping prices on those overdrafts? Would you still be paying $2.50 for the ability to use an ATM, or $14 to get your checks printed?

Yes, you would see those prices dropping. No, you would not pay so much for an overdraft. Non-interest income, rather than constituting 30 to 50 percent of gross income, would dwindle. The drop would the most precipitous at small banks, where there is less likely to be much income from either investment banking or trust management. There's also the issue of competition. Plenty of small banks only have one or two national chains to worry about in their home town. If the Wal-Mart out on the bypass had a bank, though, it might be different.

Wal-Mart has tried to get a bank charter in the past, but it has not worked. They've applied for industrial loan charters, to no avail. This is a special purpose bank. This charter can be used as a means of in-house financing. Plenty of retailers have utilized the capacity of the ILC.  Target, for instance, has an ILC. Ditto for Home Depot.

The Independent Community Bankers Association does not like the ILC. It is only a coincidence, but here is how Terry Jorde, CEO of CountryBank (Cando, North Dakota)  put it in testimony before the House Subcommittee on Financial Institutions and Consumer Credit in 2006.

The ILC specter looms over the nation’s financial system. The flood of new applications for ILC charters threatens to eliminate the historic separation of banking and commerce and undermine the system of holding company supervision, harming consumers and threatening financial stability.

The ICBA is pretty clear.

That is why I am surprised that they did not notice when Green Dot applied to purchase Bonneville Bank in Utah earlier this spring.Bonneville Bank is very small. It has one branch. Yet, it does have a charter, and one in a state with a very bank-friendly regulatory environment.

Green Dot makes debit cards. Those cards include reloadable cards. Currently, Green Dot partners with Columbus Bank & Trust. CB&T holds the deposits and provides its charter. Buying Bonneville Bank changes all of that.  Green Dot's acquisition poses the possibility that those cards will be one step closer to the new

How Will Wal-Mart Use Green Dot's New Bank?

Adam Rust's picture

Posted March 24, 2010

When a company that gets 70 percent of its revenues from Wal-Mart announces that it is going to buy a small state-chartered bank, it seems relevant to wonder what the real impact of this acquisition might be. After all, it is possible that this new bank will expand to meet all kinds of banking needs through Wal-Mart's stores.

Since 1996, WoodForest National Bank has had small bank branches in a number of Wal-Mart stores.  The branches offer basic checking, individual retirement accounts, savings accounts, and certificates of deposits.  Checking accounts come with a MasterCard ATM card. Consumers with a ChexSystems record can still get a "second chance" checking account, while regular consumers have a choice of free checking or Choice checking.  The latter has a balance requirement.  The Wal-Mart stores also offer a chance for consumers to get the GoDirect/DirectExpress card.  GoDirect is an ideal prepaid card that can store government payments. GoDirect cards are issued by Comerica.

They do not offer mortgages in the stores, and the mortgages that they offer through their national headquarters in Woodlands, Texas are limited to refinance loans.

The Wal-Marts still have a bifurcated set of financial services. When you check out, you will see Green Dot prepaid cards. These cards do come with fees, although Wal-Mart has negotiated lower fees with Green Dot for those cards.  There are monthly fees, cash checking fees, and a few other costs.

This two-headed approach could soon change.  Green Dot announced an intention at the end of February to buy Bonneville Bank for $15.65 million. Bonneville is a small bank. It has only 10 employees and equity capital of just $6 million. Its greatest asset is probably its Utah charter.

Green Dot would appear to have big plans for Bonneville. Green Dot has already said that they will put another $10 million in capital reserves into Bonneville.  Given that Bonneville already has a 31 percent tier-one capital ratio, they will be sitting on a lot of

Direct Deposit Payday: A New Race to the Bottom

Adam Rust's picture

Posted March 23, 2010

The latest financial innovation, where consumers can access short-term high cost credit through an online portal using their next direct deposit as collateral, is still so brand new that only a few financial institutions are offering it. That should not mean that this is a small issue. If anything, "direct deposit payday" is probably the Next thing that you need to worry about.

Earlier, I discussed MetaBank and my concerns over Green Dot. That isn't the only place that this is happening. The Big Banks are doing it, and so are venture capital firms through products like ThinkCash and Elastic.

Connect the Green Dots

Adam Rust's picture

Posted March 22, 2010

It only takes two steps to hop from Green Dot to payday.

Green Dot, a prepaid debit card firm, has reached an agreement to purchase Bonneville Bank for $15.65 million, pending approval from the Federal Reserve. Bonneville is a small bank. With just 10 employees and only $6 million in equity capital, the price seems very generous.

My fear is that Green Dot will use the power of a charter to add a line of credit on to its prepaid card platform.  They would only be doing what others, namely MetaBank/NetSpend, have already done.  MetaBank's i-advance card product offers debt to consumers that connect their direct deposit features to their prepaid card. The fees are very high.  I have said it before, but I believe that this is the beginning of a new iteration of payday lending.


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