While news from the Green Dot 2nd quarter earnings elicited praise among investors, the most interesting details concerned Steve Streit's strong statement about overdrafts and the company's new roll-out in check cashing stores.
Steve Street left no room for ambiguity in his comments about overdraft.
"Our strong conviction," Streit said, "is that charging overdraft fees and especially charging such fees to low-income Americans is wrong."
Some have said that if Streit did put overdraft on to the Green Dot platform, that he could dramatically amplify his company's earnings, and in so doing, elevate Green Dot's market capitalization by hundreds of millions of dollars. According to Green Dot's investor presentation, NetSpend customers spend between $25 and $35 million per year on overdraft fees. To put that into context, Green Dot has $555 million in revenues in 2012. Another $25 million in more revenue from overdraft would not be a game-changer, unless you consider that overdraft fees are as close to gravy as possible. If you could imagine $25 million in overdraft revenue translating into $20 million in income, then Green Dot's EBITA jumps almost 28 percent. Streit owns millions of shares himself, so this is a conviction that represents a meaningful exchange of self-interested profit for the sake of consumers.
An analyst asked Streit to speak about the CFPB. His comment: "I also want to be clear, because we have many people listen to these call, not just investors, that we actually agree with everything we've read from the CFPB. We think they're on track. We view part of Green Dot's vision to be consumer advocacy, and we don't think you should be charging overdraft fees on payroll cards to people making $8 an hour and $10 an hour."
Check Cashing Stores
Green Dot says that it intends to put its branded cards in approximately 20,000 new stores. The initial roll-out will take place in three New York City chains.
But Green Dot offered some color on the state of prepaid cards in check cashing stores. Again, to put that in context, it helps to think about how a prepaid card can run counter to the interests of a check casher. While check cashers might certainly gain when consumers buy loads at their stores, it is very likely that many of the buyers of these cards will subsequently set up a direct deposit. If they did, then a large motive for going to a check casher is suddenly lost.
Some prepaid cards (ICE) have established unique and often fairly expensive pricing schedules in order to offset those problems. As part of its strategic planning, Green Dot commissioned Bovitz to survey check cashing customers about prepaid cards. Their number one comment: Fees are too high.
The respondents (21-45 years old, income less than $50K, and monthly users of check cashing stores) also had a chance to rate brands. The least favorite brands, in order of worst to nearly the worst:
If Amscot is typical of these cards, then they are less than idea: Amsoct charges $9.95 to buy the card, $3.95 for a statement, $3.95 per month to keep the account open, $2 to send a check by billpay, and $46 to relplace a card within three days. If you want to close your account and get your money back in less than 45 days, it costs an additional $15.
Websites for the ICE and Axcess card have no terms and conditions or pricing schedules.