Green Dot readies GO2bank to take on new generation of challengers
As challenger banks threaten Green Dot Corp.'s status among the underbanked, the prepaid card issuer is diving into their market by unveiling a challenger bank of its own.
Green Dot took its first step recently by opening the waitlist for the aptly named GO2bank service, which it plans to launch next year.
"We chose GO2bank as our new brand by doing some pretty extensive research and because we want this product to be the go-to destination for modern banking and money movement for everyone, wherever they go," said Dan Henry, Green Dot's CEO, in a Wednesday earnings call with analysts, according to a transcript.
The branding also echoes that of GoBank, a mobile consumer checking account Green Dot launched in 2013. The GO2bank initiative should fuel further deposit growth, with a focus on serving low-to-moderate-income consumers, he said.
The economics on the GO2bank product "will be stronger than, I think, any product that we have at Green Dot currently," Henry said, citing 6% and 7% cash-back rewards funded by merchants.
It's important for Green Dot to go after this market aggressively, as challenger banks emerged as a viable threat in late 2019. Companies like Chime and Varo offer a mobile-first alternative to prepaid cards, with Varo offering perks such as no-fee overdrafts of up to $50.
Henry became CEO in March after longtime CEO Steve Streit stepped down in December 2019.
Green Dot reported revenue of $279 million during the quarter, an increase of 22% from a year earlier. Net income was $13.8 million, versu $10.2 million in the third quarter of 2019. The company says its third-quarter earnings were fueled by meaningful banking-as-a-service partnerships and services delivery.
Citing new partnerships with Intuit and Kabbage, Green Dot was able to strengthen its offerings to small business owners and accelerate its shift to digital banking and payments, Henry said.
"Leveraging Green Dot's capabilities, Intuit announced their plans to launch a QuickBooks Cash account, and Kabbage announced plans for Kabbage Checking," Henry noted. "We're also very excited about Kabbage's acceleration potential now that they are part of American Express."
Through these products, small-business owners will now have access to more seamless, safe and value driven banking and cash management for their businesses," Henry added. "We're incredibly proud to be a part of this movement and look forward to deepening our partnerships with Intuit and Kabbage and doing more for small businesses in the future."
Henry also pointed to Green Dot's recent investments and partnership with Gig Wage, which he called "a very impressive and fast-growing startup focused on creating a better financial ecosystem for the rapidly expanding gig economy."
Midway through the year, money transfer agent Remitly launched a cash deposit service for its digital bank account holders on the Green Dot retailer network.
Green Dot's advancement into the challenger bank landscape will be vital to its future, the company said. Upon becoming CEO of the company, one goal Henry set was to have Green Dot introduce a new direct-to-consumer bank.
While those programs will "come at a cost" for Green Dot, the company is concentrating more on "how we can be creative and in designing really value-rich opportunities propositions for the consumer that they love and embrace," Henry said.
Like many companies in the payments and financial services industry, Green Dot has had some highs and lows in dealing with the coronavirus pandemic. On one hand, the company pushed out $4 billion of stimulus and unemployment benefits to Green Dot prepaid cardholders, but it has dealt with higher dispute call center costs.
"It's really hard to sort of isolate the direct impact of the government benefits specifically," said Jess Unruh, interim chief financial officer and chief accounting officer at Green Dot.
"As you think about 2021 trends in gross dollar volume per active, you will really start to normalize from what you've seen in Q2 and Q3" because of benefit payouts, Unruh said. "Ultimately, we believe we'll be in a better place for the long term because of that digital adoption."