BALTIMORE–Rage against fees on credit cards, not bank accounts, drove more consumers to using prepaid cards as everyday financial tools, contends the chief executive at prepaid card giant Green Dot Corp.
"There's an assumption that people who hate banks go to prepaid (cards), but we don't see that," Steve Streit told attendees here last week at NACHA's Payments 2012 conference.
The credit crisis and people getting over their heads with soaring credit card debt and related fees helped propel Green Dot card sales in recent years instead of difficulty with bank accounts, he suggested.
Because prepaid cards feature firm spending limits and "three or four" basic fees compared with bank accounts whose overdraft fees can trip up cash-strapped consumers, millions flocked to them during the recession, Streit said. About half of Green Dot's customers also maintain a bank account, he noted.
"Customers say they like using prepaid cards because it keeps them out of trouble,” Streit said. “That phrase comes up over and over."
As the economy improves, Green Dot is keeping a close eye on its target market's evolving needs.
Women are the heaviest users of Green Dot's products, Streit said, noting single mothers in their late 30s and early 40s comprise 55% of Green Dot's target market, with most of them earning less than $50,000 annually.
But Green Dot's core customer's average annual income is rising, he said, citing company research.
"About 23% of our customers make between $50,000 and $75,000 (annually), and it's going higher," Streit said.
Enabling prepaid mobile payments is the company's next priority, Streit said.
Green Dot in March agreed to pay $43.4 million for Loopt Inc., a Mountain View, Calif.-based mobile payment startup (see story).
"We have a strong belief that if you're in banking, no matter what size you are–community banks even–all the functionality of (payments) will end up in the palm of your hand," Streit said. In the future in banking, "whatever you do needs to be smooth and elegant on a handset."
To help Green Dot move to the forefront of mobile-payment technology, the firm acquired Loopt to gain "an infusion of mobile talent," Streit said, adding that Loopt is packed with "Stanford engineers half my age."
One place Green Dot is not looking for growth is overseas.
"We have a high curiosity level (in international markets), but it's not something we're going to be doing in the near term," he said. "There is a massive market for prepaid in the U.S, so overseas is not something we are looking at today. But we take a lot of meetings; we have a lot of inquiries from India, Mexico, and China."
Acknowledging that profit margins on prepaid cards are thin, Streit said Green Dot's model is unusual in that "it's about scale and collecting tolls" by providing a prepaid card reload network for prepaid competitors such as American Express Co. that pay Green Dot an incremental fee for each reload.
"There was a lot of debate back in 2003 and 2004 about the fact that, by running a reload network, we would enable competitors," Streit said. The gamble, however, paid off because Green Dot continues to grow as the prepaid card industry as a whole expands, he said.
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