Steve Streit - Chairman of the Board, President, Chief Executive Officer
Sam Altman - Executive Vice President of Mobile Products and Technology
Michael Moritz - Sequoia Capital
Greg Smith - Sterne Agee
Green Dot Corporation (GDOT) New Mobile Bank Account Launch Conference Call January 15, 2012 1:30 PM ET
Good morning, everyone. Before we get started, let me remind you that our remarks today include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from those that we express or imply. Please refer to the cautionary language in today's announcement and in our SEC filings for information concerning factors that could cause actual results to differ materially from the forward-looking statements. Thank you.
Michael Moritz - Sequoia Capital
Good morning. I am Mike Moritz from Sequoia capital. Welcome to all of you and thank you all for coming to visit with Green Dot on what I think will be a very significant day in it history. Sequoia has been involved, fortunately with Green Dot for about a decade and the company has revolutionized one industry and it is about to make a significant announcement about the another today. I would like to introduce you to two people who are going to tell you a lot about what the future of banking is going to look like. The first is the Steve Streit, the founder and CEO of Green Dot and the father of the prepaid debit card industry and also the chairman of Green Dot Bank and the second is Sam Altman, the founder and CEO of the mobile innovator Loopt, who is now Executive Vice President of Mobile Products for Green Dot. So I will turn it over to Steve and Sam and thank you all again for being here.
Well, terrific, thank you, Mike. I really appreciate you doing that introduction and good morning to everyone gathered here in chilly San Francisco and hello to everyone joining us on the live webcast. I am Steve Streit and it is great to have you all here.
So it is pretty clear that everyone needs to have a way to handle their money like deposit paychecks and pay bills and buy things online and buy things anywhere you go and send money to friends and that type of thing. We call that personal banking. It is also pretty clear to most people including the folks in this short video you just saw that the century-old tradition of what we know as the checking account may not be the best solution for everyone. So over those many years though we have gotten used to what's out there and we just deal with it like using a payphone which was perfectly fine if you are my age until the cell phone came around and then the phone didn’t seem quite so cool after that.
So, today Sam and I are here to introduce you to a new mobile bank account that’s designed to reinvent personal banking for the masses. So let me first start up the conversation in the context by reviewing the personal banking solutions that exist in the marketplace today.
First you have the big banks, Chase, BofA, Wells Fargo, that kind of thing, and all of those banks offer personal banking services in the form of checking accounts and savings accounts. On the positive side, the big banks have large national footprint that offer a full suite of banking services but on the negative side the user experience is deeply rooted in the old way of doing things where the bank comes first and the customer comes second.
Your money but their bank and their rule, and holding an account at a big bank can be expensive for all but the most affluent customers, something upwards of $300 per year and much more if you are younger or less affluent because those customer segments tend to rack up more overdraft fees and penalty fees. Even though there are other stricter regulations that were put in to effect to help curtail these overdraft charges, last year banks still assessed consumers over $30 billion in penalty fees. If you want to open up a savings account to go along with that checking account, that’s typically another $30, $40 or $50 per year.
Next you have online banks you may wish to use, banks like Ally and so forth. These banks tend to be more modern and more customer friendly but their model is about attracting high-balance long-term deposits by offering higher than average market interest rates and then they use those deposits to lend out for other things, cards or credit cards at higher interest rate. That’s how they make their living. So they are not designed really to attract daily transactional users like relatively low balance checking account holders. Like their big bank counterparts, most of all online bank charge overdraft fees and penalty fees under checking account products.
You could use a credit union or a community bank. As a group, we think that these types of institutions do a really good job of serving their local communities with deposit products and loan products and we are a fan of community banks. But community banks and credit unions tend to have smaller branch foot prints, have smaller ATM networks than big banks or online banks. Their online and mobile technology may lag behind the bigger banks because of the resources that it takes to have those kinds of things. So that may not be ideal for all customers.
In recent years there has been a new trend that we call non-bank providers of personal banking services that have entered the space. Examples that include a product called Simple or Movenbank and many others that offer checking account alternative to a partnership with a third-party bank. Another example of a non-bank provider would be American Express with their Serve platform including the American Express prepaid product in their Bluebird checking account alternative product.
On the positive side, these providers and AmEx, in particular have been very innovative with more features and lower prices than their bank counterparts. But there can be some drawbacks if you are using a non-bank service provider for your bank. First, non-bank providers are not banks, as their name implies but instead are program managers that then contract out to third-party nonaffiliated banks to issue the account on their behalf. So your customer of the program manager and then the program manager is a customer of the bank. We are not saying that’s horrible but not the same as dealing directly with your bank.
Because many of these non-bank providers are, by their nature start-ups, there is a risk that they could close down and hand off your account to others down the road if things don’t go well. Of course, as it relates to AmEx, they are a huge company with tremendous financial resources. So we don’t see them going anywhere but the American Express Serve accounts are not bank issued and not FDIC insured. This means that those AmEx Serve product cannot, by law, accept a direct deposit of federal funds or benefits, including tax refund, social security, and that type of things. Furthermore, the AmEx debit cards that come with the Serve account have limited acceptance relative to a MasterCard or Visa branded debit cards.
Next, you have prepaid card that you could choose. We know a little bit about that and some of those cards are provided directly by banks like our Green Dot card. Some are provided by program managers through a third-party bank. Prepaid cards have been a huge success with lower-income Americans and have provided millions with mainstream financial access. But the prepaid moniker and the way in which these products are designed make them more appealing to consumers who are looking for an easy and safe way to manage their cash and have access to the financial system on a transactional basis rather than someone looking for a checking account use for many, many years ongoing.
So what we have seen in our research is that folks who view themselves as banking checking account customers and those who see themselves as prepaid card customers really do see the financial world through different lens. They are very different segments.
So, with all these solutions in the marketplace, you would think that consumers are just delighted and thrilled with their options, right. Well, here are some interesting stats from the survey that we released earlier today on the wire that was conducted by Harris Interactive, called the State of the Bank, and here is what we found some of the more interesting statistics.
Almost two thirds of Americans say they don’t trust big banks. That’s probably not a surprise given all media attention over the past few years. 56%, over half of 18 to 44 year-olds are stressed out by the bank. The overwhelming majority of Americans feel that their bank is not transparent, not on their side. In the past 10 years, Americans see banking as one of the least innovative industries, only airlines and pet care were seen as less innovative. I thought pet care was pretty cool actually but that’s what the research showed.
Also consumer behavior is changing. 60% of people said they write fewer paper checks and this one is interesting because I have six kids in their 20s. 14% of 18 to 34 year-olds have never written a paper check in their life and that statistic is bigger the younger you go on that 18 to 34 spectrum. This one we like because 65% of Americans say that they would certainly be open to opening a mobile centric bank account like the one that we are going to show you today.
So even with all the personal banking options in the market today, we believe there is room, lots of room for a truly innovative personal banking solution. Now with that said Sam and I are really excited to introduce to you GoBank.
So GoBank is a completely new brand and a completely new concept in banking and we think it has the opportunity to reinvent banking in America. GoBank is a bank account that marries the cutting-edge mobile technology that we have with an easy, fast and fun user experience and the resources of our company Green Dot and our bank Green Dot Bank and are controlling your money and intimate experience that’s always on the go with you in your pocket and always on 24/7.
So what is GoBank and how is it different? So will tell you about that. GoBank is designed to be the personal banking solution for today's smartphone generation and our bank was created from scratch to be specially designed so that you can see your money and control your money like on your smartphone which I have here. It is not a mobile app that was bolted on to the online version of a brick-and-mortar bank. The GoBank app is a bank and it is designed to stand alone. You don’t need to do anything else but use this to have access to your bank account.
So if you are the kind of person who always has a mobile phone with you, like we all probably do in this room, the kind of person who routinely texts friends and family, or you are a regular user of popular mobile apps like Facebook or Twitter or Yelp or Instagram, then we think you will love GoBank.
What else is special and unique about GoBank? Well, maybe one of the first things as you will notice is that it is really fast. You can open an account from beginning to end in just a few minutes and that it even includes designing your own custom Visa debit card with a photo from your photo camera roll or from Facebook, send money instantly to anyone by text, e-mail or Facebook, whether or not they are a GoBank member, deposit checks using the camera on your mobile phone, pay bills or pay your rents on the app and we will electronically pay it for you or if your landlord doesn’t take payments, we will mail the check fully stamped and we will send it out.
Easily put money away for savings in an FDIC insured account we call the money vault. In real time, members can move money from their checking account available balance to the money vault for safe keeping and then quickly move it back when they want to send it just by doing this on your mobile phone screen. Everything about GoBank goes fast.
Another way that GoBank is different from other banks is that we have lots of helpful features that are designed to be highly functional, easy-to-use, and fun. Sam will demo a lot of those for you in just a few minutes but here is a summary of some of the features that consumers like best in what seems to be an series of focus groups.
So among the things they liked a lot were people just loved the ability to personalize their GoBank debit card with a photo from their Facebook photo album from the phone or computer. The photo covers the entire front of the card, hang on a second, I will show you mine. This is mine with the picture of my dog, Professor Dog, who is also, by the way, is the mascot of GoBank, just coincidently. But that’s how that works. Or if you don’t want to do that, here is the standard GoBank debit card that you can get too, which is a matte black finish and actually pretty cool-looking card. I get to have two because there are just a handful of privileged VC, so I have got two to show you.
If you want to get cash, GoBank offers 42,000 free ATMs nationwide and that a lot of the free machines. To put it in to context, that’s more than twice as many as either Chase and Bank of America offer their customers. We have a really simple and helpful budgeting tool called, Ask the Fortune Teller. So once you set up your budget on the app, you can then ask fortune teller if you should buy something. It checks your budget in real-time and lets you know if you can afford it or not. It's actually quite entertaining, sort of funny and Sam will show you how that works.
You can send money instantly to anyone whether or not they are GoBank member and this tool which actually we put in wondering if anybody would use it, turned out to be one of the most used tools in the friends and family pilot that we had out for three or four months now. We have a mobile checkbook and built a tool where members can pay any company or any person on their phone.
You can easily deposit any kind of check through our mobile camera check deposit. Save money for a rainy day in our money vault. We think savings is important and the money vault, by the way, is FDIC insured account that’s integrated into the same checking account system that you have when you have GoBank. So you can put money away for savings, move money back and forth, and do it in real-time.
Security is extremely important with mobile banking. We have a lot of cool back-end controls but for the customer, we also have a robust alert system where members can fine tune a wide variety of account notifications to help them stay well informed and close to their money. There are many other unique and special features you will discover as you use GoBank and Sam will show you all of that in the demo coming up.
The next thing we think our customers will notice is that GoBank is fair. You can't get into trouble with GoBank for a simple reason because there is no trouble to get into. We didn’t design trouble in to the bank. GoBank has no overdraft fees and no penalty fees of any kind ever. There are no minimum balance requirements. Our GoBank is one of the most feature-rich bank accounts in the market. Its pricing is designed to be fair, simple and affordable.
According to the PEW Foundation's report series called the Safe Checking in the Electronic Age, the average bank had 38 different fees that a customer could incur when using their checking account and around 90% percent of all checking accounts had monthly fees with the average being or rather the median being $12 unless the customer kept an of $2,000 as a minimum balance in their account of course there are a few people who can afford to have that much money just collecting in their bank account.
So while other accounts may have 38 possible fees, GoBank has only four in the entire account. I will tell you what those are. The first, even though we have a huge free ATM network, we know that sometimes people are using out-of-network ATM machines and when they do, there is a $2.50 charge to pull out cash. If for some reason they want to check their balance at that out-of-network ATM, that would be a $1 to check the balance. If a member uses their GoBank debit card to make a purchase at a merchant outside the United States, there is 3% foreign transaction charge. If the member wants to personalize your debit card, like what I showed you with Professor Dog, there is $9 charge. Of course, there is no charge for the standard GoBank black matte debit card.
Lastly GoBank charges no monthly fee. However members can voluntarily pay a monthly fee in any amount they think is fair from nothing up to a maximum of $9 a month and so now I know you are ask yourself, say what? Why would GoBank make paying a monthly fee voluntary? Who would pay it? Why is GoBank doing that?
There are three main reasons that I will share with you. First, some people can afford to pay more than others and making the fee voluntary ensures that anyone who wants to use GoBank and become a member without regard to their ability to pay. Next, asking a member to voluntarily pay a fee rather than telling a member that they have to pay a mandatory fee, creates a more respectful relationship between the bank and the customer. This enhances the GoBank user experience. Lastly allowing the customer to voluntarily pay what they think is fair gives the customer the power to punish or reward GoBank. If based on how they feel about us at any given point in time and this provides, we think, an emotional benefits for the member because it puts them in control of their bank.
So research indicates that most GoBank members would gladly pay a fee if they like the product, I suppose we will find out. We can be profitable either way but way but it is an interesting way we charge the fee. So, when you put this all together, this isn’t a slightly lower price than other bank accounts. This is a complete paradigm shift for the way that bank accounts are priced. When combined with all of GoBank's features, we think this pricing makes GoBank a compelling value for many millions of mobile centric consumers who want to try a new way to bank.
With that, I would like to bring Sam Altman to the stage to take GoBank for a little test drive with you and Sam will come up and do that. Sam?
Hi, everyone. It's been all fun working on this product. It's something that I have wanted to build for a very long time. So I am really excited to get to show it to you now. Banks has taken us pretty far, as Steve said, but I think we have a lot farther to go. I think we are going to bridge a lot of that gap today.
One thing that’s really unique about Green Dot is we have been able to bridge the qualities of bank and the technology company which, as some of may know, is somewhat rare in the industry. So the first thing we did was think about the most common thing that people want to do and the fact is, it's just seeing how much money in your account. It's the 80% use case for your mobile bank app. People log in to check their balance but it takes a while and in a world that’s speed obsessed.
You type in the username and the password and then you have to answer security question, wait for several phone network call. All of this takes time and it can be especially slow on the phone. All you want to know is your balance. That’s the 80% use case. So you aren’t actually going to make a transaction. We can make that radically easier.
You just fire up the app, this here is called slide for balance. You slide this over, and you can take a peek at your balance. We took this common use case that usually takes 30 seconds and made it two seconds. This is opt-in, of course. If you feel to opt, but I have already enabled it and now I can really save a lot of time, for the most common use case.
Another common use, ATM. Steve talked about our massive free ATM network. You often need to find an ATM around you. We do it in one click from the login screen. You just have Find a Free ATM, GoBank will get your location, it will zoom right in and it will show you. You can see there are about 20 ATMs around me right here. Notice, I have done all of this before logging in and it has been really fast. We are obsessed with speed. I can feel the speed here as well.
So now let's log in and I will show you what our dashboard looks like. So I am going to enter my password here and I am going to log in. This is going to take me to the GoBank dashboard. There are two things that I immediately want to point out on the screen. Number one, your balance is visible, front and center, big numbers. We talked about helping our users stay in control of their money. This is a great way to do it. There is no doubt about what you have in your account.
You can also see the money vault here. In two clicks, I can stash and cash. I am going on a big trip in March. I want to save some money. I will tap the money vault. You will see the springs unlock, slide over. I will do add money. I will $500 more in my money vault and instantly that money is going to move into my money vault out of my main account. While its there, I can't spend it with my debit card. When March shows around, I will just move it right back in and I will be able to spend it. It's totally free to move money back and forth. You can do it as often as you want.
Steve mentioned that we never charge overdraft fees but we never want to let our users get even close to that situation. We want to help users keep their financial footing. So we have built a budget tool right into the app right on the dashboard and it is super easy to use. You just tap on build a budget and you can enter your expenses and income and it's a very simple tool. So you can see here if that I have got a paycheck, a cable bill and a rent. I will add one more so you can see how easy it is to do it. So I will add groceries. This is an expense. Groceries, so I spend $200 a week, (inaudible) food habit and I usually go Thursdays. So I will add that.
I can set up reminders. I can have GoBank ping me when something comes up. But it's actually even cooler than that. Now that I have built my budget, I can use the feature called the Fortune Teller that Steve talked about. So let’s say, I am standing in a store, a lot of people on our pilot testing told us they use this for shoes purchases. I don’t buy a lot of shoes. I do love computers. So let's say I am in the Apple store, and I want to buy a MacBook Pro Retina. So I enter the amount, $2,200. It finds what I am looking for. So I am going to ask the fortune teller. Now I am having the should I buy at the moment, the fortune is helping out. It is looking at all of my upcoming income and expenses and my current account balance and then it will tell me whether or not I can buy it.
Unfortunately I can't quite afford this right now. The truth hurts but we do try to soften it. You can see the dog, our mascot, Professor Dog, covers its eyes. We try to have it funny copies and make it a little more entertaining when we deliver bad news. So I can't afford this computer right now. I will have to save up more money. But maybe iPad mini. So I go back to the fortune teller. That’s only $330 dollars. It's still pretty awesome. So iPad mini, and I will ask the fortune teller if I can buy this. It will look at the data again. Look at all of my upcoming expenses and income and then there is going to be an answer. And this time the dog does a little happy dance. This I can buy. So that’s great. I will get that.
In addition to help you plan these future purchases, we try to make it really easy to look at your past purchases. I have never been happy with how my bank does this. So we try to make it a lot better. Even go way back in time with us showing things and see all your transactions. We have full text search in real-time. You can search by merchant and category name, all of that. You can fold a refresh. You have got Professor Dog in there. These transactions show up in real-time as you make these purchases. You can also see e-statements. We don’t do any paper mail or anything like that but all your statements are right here in the app.
So you can see that our dashboard (inaudible) money you have, save some, make a purchase decision, look at past purchases, all right here. We have also made it easy to pay for things and send people money. Of course, you can use your debit card, take out cash or buy something. But you can send money to a friend really easily. Steve talked about this but I use it all the time personally. So I am going to make sure to show it to you. With GoBank, you send it to a person, not an account number. You just tap send money, you can connect to Facebook. You can send via Facebook notification, an e-mail, or mobile number, and it's really easy.
So Christina bought me a dinner last night and I didn’t pay her intentionally so I could show it to you now. So I owe her $15 for dinner and I am going to send this. This transfers instantly and it's free. Christina also has a GoBank account. There's no limit to what you can send either. If she didn't have a GoBank account, if it were to another user, you can send. So she just received the money. So if she didn’t have a GoBank account, we also going to pay her. If I send it to a non-GoBanker, that non-GoBanker can open up a GoBank account themselves or move that money to their PayPal account. All for free.
So that’s the person-to-person payment. We also do rents and bill pay. If you tap here on pay bills and rent and I have got my cable bill and my cell phone bill set to pay automatically. I have got rent right here. I can easily make a payment for my rents. I just type in the number and the date that I want my landlady to receive the check. GoBank will mail a paper check to people who don’t have electronic billing set up. If your biller has electronic billing, of course, we will just send that payment electronically.
So that’s some of the ways you can use GoBank to buy things and pay for things. We also try to make it as easy as possible to deposit money in to GoBank. We have direct deposits. Actually really easy to set up here. You can use remote check deposits to deposit a check. You just tap on deposit a check, enter the amount of the check. I would take two photos, one of the front, one of the back and then I would send it to GoBank and GoBank will post that check to my account.
We have also got debit deposits. This is a great way if you are new to GoBank and want to try it before diving in fully. You can use the debit cards from another bank. Say, I want to put $200 in to my GoBank account. I could then enter the debit card number. Here I have got one saved. So I can tap this and I can enter at GoBank and I can post from a debit card to GoBank right now. It will feel just like a purchase and as you may have guessed, this is free as well. You can also add cash for free at select retailers. You can use it do that including Walmart.
So we looked at our dashboard, paying for things, and depositing money. There is one more core part of the app, one more tab that I want to show you. This is settings. Normally, accounts by themselves don’t get a lot of attention. But we have done some really cool little things and I would like to show them to you now.
First, we look at notifications. We already talked about budget notifications. Those are easy. But we really give the user quite a lot of fine grain control over the alert they want. So let's say I want to know every time I make a purchase of more than $100. I can slide this over to $100. I can tap mobile here. Now, I will get a push notification in real-time every time I make a purchase. It will just show up on my phone as soon as I swipe that card. This is a great way to help users feel in control of their accounts. As you can see there are a lot of other notification options here as well.
There is one more thing I will show you on settings, there's a lot here, but just to give you a feel, this is one that I really like. If you have ever tried to change the pin on your debit card which I have because I forget it infrequently. It’s a pain. You call your bank, wait on hold, they mail you something in snail mail. It takes like three days. You go to an ATM and then reset your pin. That’s a pain and it doesn’t really help you if you just need cash right now.
So, in GoBank, if you forget your pin, you can reset it in the app, or when you are activating your card. So you just go ATM pin. Type in your new pin number here. That’s all. My pin is now updated on my card. I can walk down the street. Go to an ATM and get cash. Of course you have got to be logged in to the app to do this and also we send you a notification to remind you that it's been changed. But we took this thing, it used to be a painful and difficult and took a long time and do it right in the phone.
That’s a peek at some of the reasons that we think users are going to love the GoBank app and we certainly have our self using it for the last few months. We tried to make banking faster, easier and more fun than it's ever been before.
There is one more thing I want to show you. The custom Visa card that Steve held up is really cool. We don’t want to go through the entire registration process because this is our live server but we do want to show you a quick video of how registration works and so you don’t have to watch me enter all my details into the whole process, I have got a vide clip which will roll now.
So this is what our registration looks like and this is a test user to make this video. The user enters an e-mail address and their password and we will collect a few more pieces of data from them. Very quickly, we get to the part where our user can create a custom card. As Steve said, people lover this. We have had people upload pictures of babies, dogs, vacations, all kinds of things. Whatever they like. It's really fast to do.
As soon as you enter your mobile number here, the very next screen asks if you would like to make a custom card. If you choose a custom card, then you will be able to select a photo, click add photo there. There are three options. You can choose an existing on your camera roll, you can take a photo with your camera, or you can connect to Facebook. In this we will use Facebook. So you tap on use Facebook, we will pull up your Facebook album, chose whichever album you would like. Once the album comes up, you chose a photo.
When you chose a photo, you then get to pinch and zoom to place it on the card however you would like and we put the numbers and the logos and such in the right place so you can see how it is all going to come up. So you have got the photo of the baby, move it around, make sure the eyes don’t get cut through by the numbers, and that’s it. You then select that photo. Tap it to go GoBank and we will send you that custom card in the mail.
So that’s GoBank. I really want to thank the GoBank team at Green Dot that built this. It's been an extraordinary effort over the last few months. If you enjoy this product as much as we hope you do, they get all the credit. With that, we will go back to Steve.
Thanks, Sam. All right, that is the cutest baby, every time I see that. Okay, so given its cool features and such low pricing, you may be wondering how GoBank makes money. So I would like the share with you the new business model in a nutshell so you can get a sense of that.
GoBank has four buckets of revenue. The first bucket of revenue comes from the use of the debit card linked to the GoBank checking account. This includes the interchange revenue that’s generated from the merchant when a member uses their GoBank debit card to make a purchase. We also earn a little bit of money when members use an out-of-network ATM machine.
The second way we make money is the voluntary monthly membership fee. Of course, some members will set their fee slider to zero and pay us nothing but our research seems to indicate that most members will gladly chose to pay us something greater than zero if they like the product.
Third, we think there is some money to be earned from voluntary opt-in offerings like that custom photo debit card. People like that one a lot.
Lastly we will earn some money from the interest income generated on the float of outstanding daily balances held at Green Dot Bank. That’s how we make our money.
So, why Green Dot? There are hundreds of companies, big and small, trying to create mobile banking solutions in the country. So why do we think Green Dot is so well positioned to successfully bring this new type of bank account to market. Well, to be a winner in mobile banking, we think we need to have some unique key assets and capabilities.
First, you need to be a bank if you want to offer a bank account. We believe that being the bank holding company and owing a bank is a huge advantage both in practice and in law and regulation. In fact, the non-bank providers are not allowed to even market themselves as banks because they are not a bank.
Can BMW be successful if they outsourced their engineering and manufacturing to nonaffiliated third party OEM bank or a carmaker rather? The answer is, we don’t they could be and so we think being a bank is actually pretty important.
Next, you need to have a robot high-scale infrastructure. Things like call centers around the world and financial technology and loss management and risk operations, strong compliant, audit, internal controls and all the things necessary to run a complex, highly regulated banking operation. Green Dot is a 12-year-old company with millions of customers depositing billions of dollars and performing hundreds of million transactions every year. We are experienced operators and so we can add new products like GoBank to our infrastructure with just small incremental costs.
Next, you need to have a creative and passionate in-house mobile product and technology talent. Building and running a mobile bank is different than just designing an app or running a branch bank. With the acquisition of Sam's company Loopt last year, and the integration of the Loopt engineers here in Silicon Valley with our bank engineers back in Southern California, Green Dot have the expertise necessary to be a leader in mobile banking. In fact, in that Harris Interactive study that we talked about earlier we found that 65% of Americans felt that Silicon Valley, not Wall Street would actually build a better bank and we think they are right.
Next you need money. Cash is important to support this type of product and maintain regulatory capital levels and be able to market and do all the things you do. Green Dot has more than $300 million in cash and investment securities with no debt. WE have had a corporate culture of innovation. To be honest with you guys, successfully launching new products like this is hard work and highly speculative. Green Dot is a company that has three times in our short history launched from scratch a new financial product that started from zero and went to nationwide critical mass. So we know how to create products, develop markets and profitably scale a new business.
Once you have all that you need to be able to execute efficient nationwide acquisition strategy. So you are going to acquire customers at a profitable cost. Green Dot has strong existing relationships with over 60,000 major retail locations. GoBank wouldn’t be the right fit for all of them. We believe a significant portion of our current retail base will be interested in helping us acquire GoBank account. Some of these retailers will also serve as locations where our members can deposit cash on their GoBank accounts at no cost.
In addition to broad-based retail distribution, we plan for GoBank to acquire customers through the Apple App Store and Google Play as well as partnering with mobile operators who want to offer GoBank to their millions of mobile phone subscribers. We further anticipate that GoBank will be a featured offering to millions of some of America's largest and most respected membership organization and affinity groups and of course the account will be available for consumers to open at gobank.com.
To put this in perspective, we expect to have broader distribution for GoBank by the end of this year than we have achieved for our prepaid products after 12 years. The demand to partner with GoBank has been very, very strong and we feel optimistic that over time GoBank could become as big or bigger than our market leading prepaid business.
Of course, there are guarantees in life and new products, as I mentioned, are always highly speculative but it is fair to say that Green Dot has unique and compelling collection of assets, the right stuff, if you will, to make GoBank a leader in mobile banking.
So with that, I want you all to stay with me, say hello to Go. That our presentation and what we will do now is take some of your questions here in the room and also for those listening and watching in on our web chat system. So if you are watching on the webcast, submit questions through that chat question tool and then if you are here in the room, go ahead and step up to a mic. There is microphone. I can't see because the lights set up and you need to walk to them so that people watching on the webcast can see your face and see who you are.
So if you have a question, you can line up behind one of the mics and while you are doing that, Sam, why don’t you come on up and tell folks how they can open up the open the GoBank account for themselves and give it a test drive.
Sure. So if you go to gobank.com, and click join now, starting right now, you can fill in your info and we will get you in as soon as we can. We are going to start accepting the first accounts today. Please use the e-mail address you used to RSVP to this event and we will make sure to let you in.
But it's really easy to go there. During the early preview, we are going to have everyone register online. When we do the full generally available launch, they will be able to register right in the app. I think we can take questions after that.
Let's do that. I don’t think we have any lined up but I am ready to answer everything. If we don’t, that’s even better. Any question that we can help with, we are certainly happy to answer. Chris, is anyone back there?
Looks like nobody wants to be first.
Here we go. Greg Smith, Sterne Agee, is walking, maybe warming the hot seat.
Greg Smith - Sterne Agee
First, can you expand upon how you can add cash in to the account? You mentioned Walmart. Will there be other retailers? How is that going to and work?
So Green Dot is one of our assets. It has a nationwide system to take cash for the reloading of prepaid card and payment of credit card bills or DIRECTV bills and that kind of things. We can repurpose that same money in system to use as a deposit taking method for the GoBank account. So not every retailer can do it today because you need to be able to swipe the GoBank debit card. Walmart is the first join us and partnering with us to do this. So you can certainly add cash at a Walmart location with their rapid reload network that they have set up and we expect that other retailers will allow the same thing very shortly.
Greg Smith - Sterne Agee
Then just second. All the capabilities, seems like a lot of that could be portable to your prepaid card product. Will the prepaid card product app start to look just like this? Just like GoBank?
Well, I wouldn’t say just like it because there is a lot of features here that are more relevant to more highly underwritten checking account customer but it is hard to un-ring the bell, right. Once you do something cool and it works and consumers like it you will see some of the more popular features and the ones that make sense, show up in some form or format on our prepaid cards and other product. Not tomorrow but over time. So that’s a fair point.
Greg Smith - Sterne Agee
All right, one more. Was there anything that you wanted to do that the regulators basically pushed back and said no?
The question is out here. The answer is that banking is a highly regulated sport, so to speak, and we think our regulators are terrific and we consulted them along the way. So we never proposed anything so goofy, if you will, that would give them reason to be overly concerned but certainly we are very respectful of the regulation and in this volatile regulation, the question is, you can take those same sets of regulations and do something boring and century-old and you can take those same set of regulation.
I will tell you this not to get too far off the question. I am always amazed when I hear people blame regulators for the reason why they cannot innovate. I can say that I find that not be the case. It may be you have to innovate within the guidelines, within the rules but I found our regulators, both at the Federal Reserve and State of Utah, to actually be very pro-innovation, very pro-customers. So we did not have that experience.
Two questions. First, you demoed the moving money into the account by entering a debit card number. I gather that's anybody's debit card?
For today, we are requiring that's in matched name on the account to get the money into your own account. We will watch the problem very carefully. We would like the ability for a parent just on their child's account, for example.
Okay, so there would be some sort of pre-selection on whether the cards are-
Remember, before you get to that screen you have to go through the whole customer identification procedure which includes verification of back-end and front-end controls and all kinds of things, lot of questions and a number that’s pretty hard to fake who you are to get into the account to begin with. Then that same information is matched against the information on the debit card. So we try to scale that down. So if you could use anyone's debit card, you could, but it wouldn’t accept. We tried that but I am sure. I will say this, we never underestimate the ability of fraudsters to figure out ways to do fraud so we have to be very vigilant with that type of thing.
Good idea. Second is with respect to doing the P2P transfers via PayPal. So, is that free to the recipient of funds? Is PayPal going to set fees?
It's free to the recipient and to the sender even you send it to an international person, it's still free.
So cross-border is free as well?
Free to send. We pay a fee when necessary.
Look we have here in the Madrone Studios in lovely San Francisco where, by the way, in case you are watching it, who don’t know, this 20 degrees colder here than in New York City. Yes, if you have a question, just go ahead and walk up to the mic.
You anticipate ever adding any kind of more point of sale mobile payment feature to this or is this something that you could do with, integrate with your Square account or with PayPal kind of account?
It’s a good question. So the question is about mobile payment versus mobile banking, which are two different things. Everyone has, there must be 17,000 companies trying to figure out, what will ultimately become mobile payments. We are focused on mobile banking. Being a really great bank for people who want to bank on their mobile device but it also fair to say that my belief is, he who holds the purse of the customer has a great head start in one day being successful at mobile payments and as those routines get figured out in the market and is it NFC or is it cloud based, is it this or is it that. Does it work this way or that way and various networks, MasterCard, Visa and so forth come up with rules for how that might work and other people at the retailer come up with POS rules for how to accept the mobile payment is something we will quickly adopt and quickly follow but it is not our focus today. That is just too young and there is too much time to figure it out.
I would just add one thing. You do get a full Visa debit card. So you could today use that with any Square card case or PayPal, anything else you would like. We are having a lot of conversations and we want to make that as easy as possible and there is a lot of people interesting early starts in mobile payments. We will watch that shake out.
Can you talk a little bit about who the target customer for this is? Do most of your prepaid card customers, existing customers have iPhones or are you going after new demographic, a new type of customer?
So when you talk about existing customers, there are really very different customer segments. So in some ways it does not really matter what we have today but having said that 65% of Green Dot's prepaid customers have iPhone or Android devices but that in and of itself is neither here nor there. The question is, we think, if you look at the size of the smartphone market, I don’t think we are going to want for lack of customers who have smartphone.
The question is, will people become familiar with it. Will they try and use it? I can tell you, as a guy, I am not a kid. I am 51. So as I first started using my mobile phone going back many, many years, my thought was, why would you do this or do that. I remember when I first loaded my Facebook app, a mobile version as opposed to online. It's literally been a year since I have even gone online for my Facebook account. It just becomes so addictive because it is always with you.
I find myself stop doing that with this account as well, where at first, I was like how will I use this and now I just can't put it down because savings, checking, everything is right there and all your bills. It just becomes very addictive over time. So we think that there's plenty of folks out there who have the opportunity, who want to use this.
On thing to add is there is Android too. So I think if you look at people that have an iPhone or an Android, and are under 40, and are dissatisfied with their bank, its actually quite a large market. I think that we are looking at people across wide economic range just wanting an alternative. If you want to go into a branch, we are probably not the bank for you but if you want to do things quickly on your phone, I think we are pretty good.
Well, not just beyond bank, but people who are dissatisfied with their bank and want something there.
Oh, yes, there is something on banks about this product. We would expect that most of our customers would come from the existing banking account relationship except for some of the partners working with who deal with college kids first going off to school and they are looking for the first bank account experience. So it could be that you are new to banking altogether. You just are getting one for college or you got your new first job and you are looking for a new account. We actually anticipate that most of our customers here will be from the bank world. It really is interesting in Green Dot because it is somewhat solid product. You have entirely different problems and our technology teams working on these and this has nothing whatsoever to do with our prepaid division or the prepaid debit. So this is just about a general market product and if you like to do things in your mobile phone and you look for restaurants in Yelp as opposed to going online to Google or the yellow pages or something, those are the kinds of folks that we think will like this.
I think it's really the bank customers that’s on the serve market, right. A lot of people don’t lover their bank. We tried to build an app that we think they will love. So hopefully many of those people will decide to try it out.
We do have a few questions coming in via the webcast. So first, what's the marketing strategy for GoBank?
Well, we have a lot of cool ways to get this out there. One of the neat things about this product is that there's some many viral and online social media aspects to it. So I will review of a few of what we have. So the first part, as you look at all the ways we market this is social media in which Sam is far more expert at and Sam's team than I am. So he can talk a little bit about the social media, if you want.
Okay, the first thing I will point out, and this is actually a viral product. If you send money to a friend which I use it quite a bit that user gets an invitation to open up a GoBank right there and there is a lot of good reasons. We can actually get that than the user. Then second, we will distribute this through all of the digital channels you'd expect. So it's in the Apple app store. It will be on Google Play. We will work with mobile operators. We will work with large internet web properties. There is a lot of interest in getting this account out to people and again, as a follow to those question, there a lot of people that want an alternative for their existing bank. So we will be able to use online and mobile really well to distribute this product.
The other ways we are planning on marketing it to question around the website on the chat is the retail branding a store. Look a great way to get your name out to the public is to be in retailer where America shops everyday and as we mentioned in the prepared remarks there is a number retailers who are highly interested in featuring GoBank racks in their retailers and that’s a good way to get the word out.
Partnering with affinity groups. It is interesting when we first started talking to folks about the account and showing them the demo, it really wasn’t a sales meeting, which is what we thought it was. People are really viewing this product as almost a public service, as a civic service that people need a very cost-effective, a modern and safe way to bank. So we just had tremendous interest in that. So we expect the people to get the word out because their membership group or affinity group says hey, check out this new kind of checking account.
Of course, as Sam mentioned, it will be available in the app stores, so folks can download them as well. There may be some other kinds of marketing. We will see as we look at the cost of acquisition fee, how the natural acquisition plays out. But that together is how we are going to try to get GoBank in the hands of customers.
I have another one from the webcast, just about the beta phase. Curious as to how you are gathering the data that comes back from the user base and how you use that to make improvements to the product going forward?
Sure. So we love user feedback, and in fact, in our pilot, we have got quite a lot of it. We build the duration for (inaudible) every two weeks. So we will pick user feedback and new features that they like as much as we can get or just e-mail address in the app if you are sending feedback. There is also instructions which are posted on the media channel and of course we look at the usage data. With those things combined, we expect we will quite a lot of feedback during this early access period and we will be able to make all those improvements to app for general availability.
So we do iterations every two weeks?
So we are constantly changing it and constantly updating it as part of the refinement of the product.
Then I also have a question from the webcast about security. What are the differences as it relates to security, fraud detection and risk management for GoBank and how much of the capability here have been newly built versus which you already had in the prepaid side?
So, as a banker, we are always super concerned about security. There are just so many kinds of crazy denial of service attacks and people figuring out ways to hack into this or that and no bank will ever be perfect because it’s a, lets call it a race where you are constantly trying to beat the fraudster and then he tries to beat you and you go back and forth. So it's somewhat of an iterative process.
What we learned over many years and many millions of account holders, that the best way to stop fraud is not let fraud in the door to begin with. We actually have one of the stronger, what's called the trade industry CIP, which a customer identification practices where not only do you answer all the normal questions you would answer for a bank account name, address, social and that kind of thing, and we verify that with the database.
Then we also do, what's called out of wallet question. Out of wallet is more typical, frankly in the credit card industry, but we sort of adapted that for our checking account too where we ask you questions that in theory only you could know and a fraudster can not. Where was your father born? What was the first kind of automobile you drove and so forth? Those types of questions.
Then we actually verify your cell phone number and the device you are working on through device tracking. Then we also verify that your e-mail is really an e-mail and you have to make sure you verify that. So it's fast and its rapid but we try to triangulate information so that everything adds up the way it should add up.
There is also number, to the questioner who asked, of back-end controls. We don’t want to spill the beans here because some of that is proprietary but it’s a way of tracking how every piece of data comes from the device that’s supposed to be coming at a time and place and the location it supposed to be coming from and all those together, we think will help make it secure. But we never ever think we are secure enough, if you will. So that’s an ongoing process.
I have a question on the fortune teller feature. So you mentioned that future registered expenses and income are factored into the fortune teller response. Where does all that information come from?
As Sam demoed it, there is little bit budget. An onboard integrated budget feature and it's actually a good question. So this is a way it comes to the problems design stuff. When depending on what you make, that's what you think your budget is. So, if you make, let's pretend, $150,000 a year, you think your budget, in terms of month, what's my monthly rent, what's my monthly whatever it is, restaurant budget or phone bill. When you are making $75,000 or $60,000, you are talking about cash flow. What can I buy right now? Can I buy that dress right now? Can I go out to party with the guys tonight right now?
It's more really of a cash flow question, not a long-term budget question. So what we did was create an app that counts your cash flow up-to-the-minute in real-time and when you come in, I don’t know if you have it up there, but when you set it up, it is very simple. You have money in and money out and when. That’s all we ask. You can set up an entire budget including your rent and car payment and all your major expenses literally in about three to four minutes, because the more complex you make it and there is a lot of great products out there whether its quick this or that, the problem is how many folks are really setting up pie charts and looking at them and everything before they buy a computer or a pair of shoes, whatever it is.
So we really wanted something integrated and onboard that works with your available balance in real-time and live time and anticipates what you are doing. So you do have to fill this out. If you don’t put any information. I will leave it blank, the fortuneteller or the dog just looks at you like, what you want me to, you know? So you have to at least put in what you are earning and what you are spending. You don’t have to be detailed but the major expenses and that’s how we do that.
There is theme coming in one credit related products. So I guess maybe a few part question. Do you plans for operating credit related products with this or is there an ability to tie in an outside credit card to the pipeline?
So the answer is Green Dot Bank does not do credit. We don’t grant credit in any form or fashion. The community bank we have in Provo, Utah, Bonneville Bank still serves customers of credit and loans and all variety of full-service account but in terms of Green Dot Corporation, the Green Dot Bank, outside of Provo, Utah, we don’t and we will not with this account.
That isn’t to say that we may not at some point down the road partner with the bank that specializes in credit and partner with a big bank who knows how to do that well and offer that as a cross-sell or a membership opportunity. But Green Dot and Green Dot Bank itself will not be doing credit.
So it looks like we have got time for one more question.
Yes, I am wanting to finish with this one then. Do you think this new product will cannibalize any of the existing Green Dot prepaid business and if so, do you have a migration plan for those customers?
No, it's funny you asked that one. I had one the other where someone said, will you upsell customers to the checking account. There is no upsell or downsell. It just is. Everyone has a different need for a different product. You either rent a car for a short period of time, in which case you go to Avis or someone, you pay $100 a day or you want to buy a car, in which cash, you are going to go a dealership and buy one and keep it for four years. They are different products. They are different consumers. They have different needs. The answer is we don’t think there will be any cannibalization because we just tested this over and over again.
If you view yourself as a prepaid customer you are viewing yourself that way because you have certain needs that a prepaid card solves. If you view yourself as a checking account customer, and you are accustomed to using a bank checking account, its likely that you don’t even consider prepaid as part of your world. This isn’t the way you see the world.
So we don’t think there will be any cannibalization or we try to cross sell, or good, bad or indifferent. They are independent products that serve different customer segments.
That’s it in the room. We appreciate the time. There will be lots of opportunity to ask us questions and then John Keatley, our CFO and I will have an earnings call at the end of this month and you can certainly ask other questions at that time too. So thank you so much for coming today.
We have also got some phones loaded up if you would like to play around with it over here.
Sorry, there is a demo station. Raise your hand if you want a demo station. So we are GoBankers along the walls here at demo stations. You can feel free to play with the product. Then when you have a chance go online and get invitations. You can download and put tons of money on your GoBank account.
Thank you very much.
Thank you all. Bye, bye.
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