The issues tied to its MoneyPak reload cards continue to plague Green Dot Corp., despite the prepaid card issuer's decision to discontinue the product back in 2014.
The MoneyPak system allowed prepaid card users to add cash to their accounts by purchasing the MoneyPak cards in stores, then linking the reload card to their prepaid card account through a phone call or Web form. Fraudsters favored MoneyPaks as a way to move funds without tying the transaction to a victim's bank account.
But the reload card was popular among law-abiding customers as well, and while executives cited revenue from acquisitions of Santa Barbara Tax Products Group and Achieve Card as helping offset the loss of MoneyPak, the closure of the MoneyPak system still weighed heavily on Green Dot.
"The bad is obviously the loss of revenue and to a lesser extent, the loss of the associated adjusted EBITDA, as we have lost many good customers who relied on MoneyPak to facilitate their legitimate use cases," said Steve Streit, chairman, president and CEO of Green Dot, during the company's Aug. 4 earnings call.
The system was replaced by one that allowed consumers to add funds by swiping their prepaid card at the register while handing over cash to a store clerk. This week, Green Dot added a mobile version of this system that lets consumers present a bar code instead of swiping their card.
Streit's comments reflected the irritation the company continues to feel over what amounted to a fraudster takeover of the MoneyPak product. The scam was so well-known that it was even featured in a recent episode of Netflix's hit prison drama, "Orange Is the New Black."
Green Dot will eventually be able to overcome the setback related to MoneyPak because its vision doesn't depend on the sale of reload cards, said Larry Berlin, vice president with Chicago-based First Analysis Securities.
"The company has worked so hard to become broader in its services," Berlin said. "Steve Streit says his company is not a just a prepaid company, but a financial services company for people with modest incomes."
This strategy was evident in its 2011 purchase of Provo, Utah-based Bonneville Bancorp, transforming Green Dot from a prepaid card marketer into an issuer of its own cards. The acquisition also facilitated the development of later products such as the GoBank mobile checking account.
The demise of MoneyPak was a "pretty big hiccup" for Green Dot to deal with, but the company will no doubt have more to offer in the future, Berlin added.
On the positive side, Streit noted during the call that Green Dot customers appear to be spending more and represent "a more committed customer who uses the product as it was intended to be."
Green Dot's acting chief financial officer, Mark Shifke, pointed to the new breed of Green Dot customer as "a catalyst for growth in future years" because of a 14% year-over-year increase in combined card and interchange revenue per 90-day active customer in the second quarter.
"When combined with our acquisitions of prepaid businesses, this growth for active customers on a consolidated basis is 24% year over year," Shifke said.
It is not easy for Green Dot to calculate customer and retailer behavior, or how they will respond to new technologies after so many years of simply selling a MoneyPak card at the point of sale, Streit said.
"Will retail cashiers know how to swipe [or scan] now, or will they send the person away?" Streit asked. "But then you also have people leaving the brand who frankly were doing things that the product wasn't designed for. We are seeing all of that said aloud, and that's been, I think, the hardest part for us to really predict and understand."
Pasadena, Calif.-based Green Dot delivered $170.2 in operating revenue for the quarter, a 15% increase from $147 million in 2014. Net income decreased 76% to $3.5 million for quarter, down from $14.3 million in 2014.
"The summary for the quarter is that we are encouraged to finish ahead of plan, but we're not pleased with the legacy portfolio contraction," Streit said. "We know we have work to do to turn that around once all the MoneyPak dust settles, and we are implementing specific plans to do just that."