Green Dot's future is less Walmart, more Apple and Uber
After the last two decades of selling prepaid cards and bank accounts direct to consumers, Green Dot has increasingly been shifting gears to rent out its payments and banking infrastructure to nonbanks who want to offer cards and banking services to their users.
Recent examples of this shift in strategy include Apple and Uber, which are leveraging Green Dot’s infrastructure on a white label basis. The Apple Cash card, which is used to collect the daily cash back earned on the Apple credit card, is issued by Green Dot Bank.
“In the last two years we’ve experienced a strategy transformation that focuses on renting space on our payment rails and banking platform," said Seth Ross, vice president of business development at Green Dot. "It’s similar to how Amazon created AWS first for its own needs and now rents space to others because it’s at scale. It works for us because we also operate at scale. The beauty of our platform is that you get partners up and running immediately.”
Green Dot offers its partners the ability to quickly launch their services through the use of APIs that are integrated into its clients’ mobile apps. This is a shift from an earlier model that focused on selling prepaid cards on J-hooks in retail stores.
The pressure to diversify may come from Green Dot's massive reliance on selling through its partnership with Walmart. According to Green Dot’s quarterly 10Q SEC filing for the three month period ending June 30, 2019, 35% of Green Dot’s operating revenues were generated from sales at Walmart. Also 19% of settlement assets outstanding on its balance sheet was being held by Walmart at the end of that quarter.
The net effect is that Walmart has significant leverage over Green Dot and most likely is driving the terms of its latest partnership renewal announced in October. Financial terms of that partnership deal were not disclosed, although the contract begins on January 1, 2020 and lasts for a period of seven years.
It is also important to recognize that the timing of change in strategy roughly two years ago is right around the same time that Green Dot ended its feud with activist investor Harvest Capital Strategies LLC, which sought to oust Green Dot founder and CEO Steve Streit.
“One could imagine that Walmart and other retailers will remain key relationships for Green Dot, however, growing the BaaS client base should make Green Dot less dependent on a single partnership or the legacy prepaid card business,” said David Shipper, senior analyst, debit, credit and prepaid cards at Aite Group.
Dov Marmor, general manager and head of Banking-as-a-Service at Green Dot, noted that the ability for fintechs to offer debit cards and bank accounts to consumers or contractors has increased in the last few years, stemming from the fact that there has been a shift in the perception of banking services.
For example, Uber drivers aren’t looking for a prepaid card or bank account from Green Dot, they just want to get paid faster and how that happens is not necessarily important to them. However, this is what causes companies such as Uber and Lyft to dive into payments and banking more heavily.
“We don’t even call it banking; the level of trust consumers have with big banks has been eroded," Marmor said. "Consumers are putting their trust with the brands that they interact with on an everyday basis like Apple, Uber and others. How you built trust today is also different. A big part of this is how consumers interact with these brands."
Green Dot executives highlighted one client in particular that is emblematic where their strategy is taking the company – Stash. It’s an automated investment startup that focuses on consumers who want to start investing but lack the funds. Stash allows users to start investing with just $5 a month, offers fractional share ownership and charges $1 in monthly fees for an account with less than $5,000 in assets.
In the case of Stash, Green Dot offers its entire platform through the use of APIs to deliver a suite of banking products to Stash users. Green Dot’s Banking-as-a-Service (BaaS) platform includes a debit account with no overdraft or monthly maintenance fees, direct deposit features and access to a network of free ATMs nationwide.
Probably the most unique feature about Stash’s banking services is the debit card that offers stock back rewards instead of cash back. In other words, Stash lets its users accumulate stock in the companies where they spend money using a Stash-branded debit card.
“It’s the ultimate goal of fintechs to have consumers spend their entire lives within their ecosystem," Marmor said. "We have partners that are having their customers ask to bank with them and provide payment services. Since we built these services first for our customers, it’s easy for us to turn around and rent them out to others who don’t want to go through the hassle of becoming a bank or can’t become one.”