How Green Dot Works and Makes Money (GDOT)

Pasadena-based Green Dot Corp. (NYSE: GDOT) is a fintech company primarily in the prepaid debit card business. Green Dot products are issued by its wholly owned subsidiary, Green Dot Bank, and third-party issuing banks including Sunrise Banks, N.A. and The Bancorp Bank (NASDAQ: TBBK).

A 2016 survey by Consumer Reports rated 20 general purpose reloadable (GPR) prepaid cards used as banking substitutes. The cards were rated on four criteria: value (fees), convenience (how widely accepted), safety (FDIC insurance), and fee information accessibility and clarity. The second-highest and third-highest rated cards were both Green Dot products.

Green Dot produces and manages reloadable cash cards and gift cards for retailers and is the largest provider of GPR prepaid cards in the United States. The company issues debit cards under both the Visa (NYSE: V) and MasterCard (NYSE: MA) brands. Green Dot is involved in several co-branded GPR card programs, and also offers Visa-branded gift cards. The company has multiyear distribution arrangements with many retailers, including Walgreens Boots Alliance Inc. (NASDAQ: WBA), 7-Eleven, Kroger Co. (NYSE: KR) and Dollar Tree Inc. (NASDAQ: DLTR).

Green Dot has been the program manager for the Wal-Mart Stores Inc. (NYSE: WMT) MoneyCard debit card system since 2007. On June 22, 2015, Green Dot announced that it had renewed its contract with Walmart for an additional five years, as of May 1, 2015.

The company operates its GoBank mobile checking account, developed for use via mobile phones. This service is available both in-store at Walmart and online. Customers incur no overdraft or NSF fees. The $8.95 monthly membership is free during any month when the customer makes direct deposits totaling at least $500. Customers can order a pack of 12 paper checks for $5.95.

Through its subsidiary, TPG Capital, Green Dot is the largest processor of tax refund disbursements in the United States. Its tax refund services are integrated into the offerings of partnering tax software companies. Through these arrangements, Green Dot serves approximately 25,000 independent online and in-person tax preparers and accountants nationwide.

Green Dot's products and services are available through what it calls a "branchless bank" distribution network of more than 100,000 U.S. locations and online. The physical locations include retailers, neighborhood financial service centers, tax preparation offices and app stores.

As of August 2016, Green Dot’s Visa and MasterCard debit cards had purchase prices of up to $4.95. The company’s NASCAR prepaid Visa card can cost up to $6.95. Green Dot also charges a $5.95 monthly fee, which is waived in any monthly billing cycle when the customer loads at least $1,000 on the card or has 30 posted purchase transactions, excluding declined ATM withdrawals, ATM balance inquiries and teller cash advances. Customers incur no ATM fees for withdrawals made at MoneyPass ATMs. Otherwise, Green Dot charges a $2.50 fee in addition to whatever fee the ATM owner might charge.

Green Dot had a market capitalization of $1.2 billion, as of Aug. 5, 2016. It had a debt/equity ratio of only 1.08 compared to the industry average of 2.4. It has a forward price-earnings (P/E) ratio of 13.9 and a trailing 12-month P/E ratio of 41.0, compared to the industry average of 18.2. The company’s trailing 12-month price-to-sales ratio is 1.7 compared to the industry average of 2.9. Green Dot has a trailing 12-month return on assets (ROA) of 1.7% compared to the industry average of 2.7%. Its trailing 12-month return on equity (ROE) is a disappointing 4.3% compared to the industry average of 16.0%. Green Dot’s share price has soared 47.25% during the year.

On Aug. 4, 2016, Green Dot reported second-quarter earnings of 27 cents per share on revenue of $873.5 million, beating analysts’ estimates of 24 cents per share on revenue of $169.1 million.