Credit and Debit Card Ratings

Green Dot Posts Solid Results Despite Increased Competition

By Shane Tripcony

One of the most prominent messages on the homepage of Green Dot Corporation, a longtime issuer of prepaid debit cards, is a simple one. “Big Banks, No Thanks,” blares a nearly screen-sized headline, which alternates between a promotional message about something consumers likely care a good bit more about: a chance to win a year of free gas.

In many ways, this short, punchy salvo – which is buttressed with the message, “The Green Dot Card is the smart and easy way to manage your money,” along with a 5- question quiz that purports to answer whether a Green Dot Card is right for you – says an enormous amount about the state of the prepaid debit card industry today. It’s hardly a new flash to readers of this site, but large financial institutions of all sorts, including American Express and JP Morgan Chase, have begun offering prepaid debit cards in hopes of grabbing a slice of this quickly expanding and lucrative market.

For prepaid debit card consumers, the attention of big financial players has been an undeniably good thing: fierce competition among rivals, some of whom are willing to forgo chunks of revenue in the short-term in order to gain market share, have put much needed downward pressure on fees and increased overall transparency. But longstanding industry players like Green Dot could be forgiven for not being thrilled with the prospect of tough competition that threatens to eat away at their profits.

Still, Green Dot’s web page swipe at its competitors isn’t exactly an effort to mask the company’s weakness. In fact, on July 30 of 2013 the company announced results for the second quarter and Green Dot seems to be holding its own just fine, thank you. Indeed, the California-based company reported net income of $11.3 million for the quarter, which was 4 percent higher than the same period in 2012. Additionally, revenue topped $142million, which was also 4 percent higher than the previous year. At the same time, Green Dot provided an improved full-year guidance, announcing that it expects operating revenue to come in somewhere between $565 million and $575 million and earnings per share to be in the $1.05 to $1.20 range. The better than expected results prompted Green Dot’s shares to jump 16 percent the day after its announcement.

“Despite aggressive competition from large financial services companies and rigid self-imposed risk controls that materially reduced new customer enrollment, we believe Green Dot remains the clear leader in the prepaid space and is well positioned for the future,” said the company’s CEO Steve Streit. And far from going on the defensive, Green Dot also unveiled a distribution partnership with the likes of Home Depot and Dollar General, which will up its nationwide presence by about 20,000 retail locations.

None of this is to say that Green Dot doesn’t face challenges, as Motley Fool contributor Jordan Wathen goes at lengths to explaining a recent post, citing in particular the threat posed by American Express Company’s Bluebird card. But whatever the threats may be, it seems clear that Green Dot won’t be going away quietly.

Author: Shane Tripcony

  • Green Dot Posts Solid Results Despite Increased Competition

    Green Dot Posts Solid Results Despite Increased Competition

    By Shane Tripcony

    One of the most prominent messages on the homepage of Green Dot Corporation, a longtime issuer of prepaid debit cards, is a simple one. “Big Banks, No Thanks,” blares a nearly screen-sized headline, which alternates between a promotional message about something consumers likely care a good bit more about: a chance to win a year of free gas.

    In many ways, this short, punchy salvo – which is buttressed with the message, “The Green Dot Card is the smart and easy way to manage your money,” along with a 5- question quiz that purports to answer whether a Green Dot Card is right for you – says an enormous amount about the state of the prepaid debit card industry today. It’s hardly a new flash to readers of this site, but large financial institutions of all sorts, including American Express and JP Morgan Chase, have begun offering prepaid debit cards in hopes of grabbing a slice of this quickly expanding and lucrative market.

    For prepaid debit card consumers, the attention of big financial players has been an undeniably good thing: fierce competition among rivals, some of whom are willing to forgo chunks of revenue in the short-term in order to gain market share, have put much needed downward pressure on fees and increased overall transparency. But longstanding industry players like Green Dot could be forgiven for not being thrilled with the prospect of tough competition that threatens to eat away at their profits.

    Still, Green Dot’s web page swipe at its competitors isn’t exactly an effort to mask the company’s weakness. In fact, on July 30 of 2013 the company announced results for the second quarter and Green Dot seems to be holding its own just fine, thank you. Indeed, the California-based company reported net income of $11.3 million for the quarter, which was 4 percent higher than the same period in 2012. Additionally, revenue topped $142million, which was also 4 percent higher than the previous year. At the same time, Green Dot provided an improved full-year guidance, announcing that it expects operating revenue to come in somewhere between $565 million and $575 million and earnings per share to be in the $1.05 to $1.20 range. The better than expected results prompted Green Dot’s shares to jump 16 percent the day after its announcement.

    “Despite aggressive competition from large financial services companies and rigid self-imposed risk controls that materially reduced new customer enrollment, we believe Green Dot remains the clear leader in the prepaid space and is well positioned for the future,” said the company’s CEO Steve Streit. And far from going on the defensive, Green Dot also unveiled a distribution partnership with the likes of Home Depot and Dollar General, which will up its nationwide presence by about 20,000 retail locations.

    None of this is to say that Green Dot doesn’t face challenges, as Motley Fool contributor Jordan Wathen goes at lengths to explaining a recent post, citing in particular the threat posed by American Express Company’s Bluebird card. But whatever the threats may be, it seems clear that Green Dot won’t be going away quietly.

  • The Battle Over Swipe Fees

    The Battle Over Swipe Fees

    When the so-called Dodd-Frank law passed in 2010, one of its measures was pretty easy to quantify. A sprawling, complicated and controversial piece of legislation aimed at taming the most egregious of abuses perpetrated by the financial services industry in the years before the 2008 financial collapse, Dodd-Frank also addressed the amount of money debit card issuers could charge retailers when a customer made a purchase with plastic. The Federal Reserve was tasked with deciding what the cap should be and eventually settled on a number just below 25 cents per transaction. Estimates on the impact of the ceiling on that fee– known as a swipe fee because it’s a charge that gets racked up when a retailer swipes a card – on banks and card processors come to around $8 billion annually, a hefty chunk of change.

    According to a recent report from Bloomberg News, banks and payment networks are working hard in state capitals around the country in an effort to prevent restaurant and clothing storeowners from charging their clients more to pay their tabs with credit cards than they do for debit card and cash transactions. According to the Bloomberg story, written by reporter Carter Dougherty, banks and their allies have already been successful in banning surcharges on credit card purchases in Utah, and around 20 other states are also considering bills related to swipe fees.

    In a nutshell, what the legislative initiatives in Utah and other states is aimed at doing is preventing retailers from urging – particularly through the use of surcharges – their customers from opting for cash or debit cards over credit. At issue, of course, is money. Banks and card processors are eager to keep as many customers as possible in the habit of using their credit cards when they buy a meal or an iPod; according to the Bloomberg report, card issuers earn between 1 and 3 percent of a transaction whenever someone uses their Visa, MasterCard or American Express card.

    Not surprisingly, retailers want to see swipe fees associated with credit cards as low as possible, contending that they are already too much of an unfair cash cow for banks. “I view the banks and credit-card companies as unwanted business partners. They do not work anywhere near as hard as I do, yet they collect nearly as much in fees as the average restaurant earns in profit,” wrote Ted Burke, the co-owner of the Shadowbrook Restaurant in Capitola, California, in the San Francisco Chronicle. “Business owners like me can negotiate virtually all of our costs, but we are powerless to negotiate swipe fees.” If banks and card processors are successful on the state level, many retailers also won’t be able to encourage customers to opt for lower fee debit cards. Under federal law, business a credit card transaction can cost a consumer more than a debit or cash purchase.

Credit and Debit Card Ratings