Green Dot Corporation Presents at Goldman Sachs Technology & Internet Conference 2013, Feb-13-2013 11:40 AM

Feb.13.13 | About: Green Dot (GDOT)

Green Dot Corporation (NYSE:GDOT)

February 13, 2013 2:40 pm ET

Executives

Steven W. Streit - Founder, Chairman, Chief Executive Officer and President

John L. Keatley - Chief Financial Officer

Analysts

Roman Leal - Goldman Sachs Group Inc., Research Division

Roman Leal - Goldman Sachs Group Inc., Research Division

Hi, everybody. It's a small but select group. Well, great. Thanks, everyone. My name is Roman Leal. I am part of the IT Services team here at Goldman Sachs. I work with Julio Quinteros on the concession processes and network coverage. With us here today, we have John Keatley, CFO of Green Dot; and Steve Streit, CEO of Green Dot. So welcome. Why don't we just get started? [indiscernible] everyone here. Maybe just kind of talk to us a little bit about the core offering of Green Dot, maybe the core products or new products or the new vision for -- some of the things you're doing. And we'll open it up.

Steven W. Streit

Okay, super. Well, Green Dot, for those of you who are not familiar with the company, our mission is to reinvent personal banking for the masses. Personal banking, meaning deposit accounts, checking accounts, prepaid accounts, that kind of thing. For the masses, meaning not for the 1% but for the other 99%. So that's sort of our mission in life. And we have our core product, which is what our claim to fame, would be creation of the prepaid debit card category that is now in retailers and many other channels everywhere.

And then we have our reload network called the Green Dot Network, which is sort of an open source cash-deposit-taking network that is used for any bank or program that can qualify to join our network. And today, we have about 140 programs that represent maybe 300 different card labels that reload on the Green Dot Network and retailers nationwide, about 60,000 of them. That's the second thing.

We have another. The third thing is what we announced not far from here, in San Francisco, GoBank, which is our new mobile-based checking and savings account offering. It's called a mobile bank account. And GoBank is nothing whatsoever similar in no way to our prepaid card. It's an account that targets anybody who doesn't like their account at Chase or BofA or U.S. Bank or anywhere else. So if you look at sort of the spectrum of offerings, you have prepaid here at the segment of Americans who make $50,000 or less, you have the reload network that is sort of the ecosystem that feeds that network, and now you have GoBank for digital natives and people who are heavy smartphone users and heavy app users. And it's been a fabulously well-received launch. The last I checked, we're near 200 million media impressions from the launch. And if you haven't seen it, you may want to pull it up on YouTube or you go to our Investor Relations site and you can download it there in HD, although it's a long download. And you can see the presentation there. So that's sort of our segment of products.

Roman Leal - Goldman Sachs Group Inc., Research Division

How does that translate into addressable market? I think we have the core product. Could the product be more focused on the under-banked segment of the market. But GoBank obviously should stretch that a little bit. What's the new addressable market for Green Dot, do you think?

John L. Keatley

Well, yes, that's right. Our prepaid offerings were primarily targeted at the unbanked and under-banked which is a big segment in and of itself. Estimates kind of range from $50 million to $100 million depending on how you define it. But it's a big chunk of the American public. For GoBank, we think it will be as you've mentioned, people will adopt it instead of another bank account. So it really appeals to the fully-banked as opposed to the unbanked or the under-banked.

Steven W. Streit

We call them the unhappily banked.

John L. Keatley

Yes. And we think the unhappily banked is being roughly, let's say, maybe half of the bank market that tend to be in the lower income half of the entire bank market, which is by itself close to 100 million people there. So very large addressable market. Prepaid is still early in its adoption days of the unbanked and under-banked. And we think that GoBank is establishing a really unique position to go after the unhappily banked.

Roman Leal - Goldman Sachs Group Inc., Research Division

That's such an interesting topic. A little, slight difference here, but whenever I look at my bank account statement, I just think to myself, what am I doing with this bank? It doesn't make sense. But I don't switch, right. So what's the strategy to actually get unhappily banked customers to actually switch from the current traditional bank onto something like the GoBank platform?

Steven W. Streit

Well, it depends on the segments. So if you're new to banking, if you're a college student, let's say, you're turning 18 and you fill out sort of your FAFSA online form for student aid, and you have to get a computer so you buy your Apple. And then you need a bank account, and today, you'd go to a community bank or you'd go to whatever bank your parents use. So we think that's a fresh opportunity because it's just such a viral kind of a thing because it's a bank account that's an app and that's also a pretty cool website. And there's lot of attitude to the banks, so it's not just the technology; it's entire branding and flavor and texture of the offering. So we think that for that segment, it may be easier. If you're deeply entrenched in your bank but you're happy with it, you change banks anyhow. Today, 25% of all banking customers say they're looking to change. And I think, in any given year, 12.5% actually do change. So they go from Chase to BofA, from BofA to U.S. Bank, from U.S. Bank to Wells Fargo. But they're changing. And many of you know people who do that, maybe they moved, they had a life circumstance, they've gotten married. They got angry because they had one overdraft fee too many or who knows why. But there are always people moving around, which is why banks advertise. If nobody ever changed banks, there'd be no reason for banks to have billboards and TV commercials. So there's obviously always an available loose [indiscernible], if you will, that is looking for another alternative. And there's a lot of people there.

And then we think people also have multiple checking accounts. So if I were to ask the folks in this room and ask you, do you have just one checking account, more often than not, the answer is no. You may have an account you use for your daily stuff and maybe another one that you use because you used to have it and you still use it for certain things. Everyone has different needs, but the average American generally has more than one checking account. And the entry point to GoBank is just so easy. You enroll on your mobile phone, even online, too. The online site is pretty cool, but the mobile is where we focus everything on. The whole enrollment process, from soup to nuts, is 45 minutes. And I did mine at the back of a taxicab in New York going to a meeting when we first launched the pilot, and that included making my custom Visa card from a photo on my Facebook album. It's just so different from meeting with the bank accounts at a branch and filling out paperwork and discussing it and looking at 19 different options. So we think we have some real opportunity. But your point, to make it work, the marketing has to be right, the viral nature has to be right, and it needs to be the real deal because in today's world of social media, it almost doesn't matter what the company says about the product. It matters what opinion leaders make of the product. And so far, it's been spectacularly well, far beyond what I could've ever hope. But whether that translates into new account openings and retention and the revenue, that remains to be seen.

Roman Leal - Goldman Sachs Group Inc., Research Division

Sure. And I'm sure we'll touch more on GoBank in a second. But going back to the core prepaid business, the competition there has obviously increased tremendously over the last few years, and so the addressable market is attractive. It seems like it's very underpenetrated. What sort of thing can you do to enhance your competitive advantage or positioning within your core retail distribution channel? That's where it seems like a lot of competition is focusing on.

John L. Keatley

Yes. Maybe I'll start with things we have done that seem to be working well, and we can talk about things that we can do in the future, too, to further enhance it. One of the things that we found over the past several months is that our brand is really very resilient. In the stores where we offer the Green Dot branded card and there are competitive cards on the shelf, we're finding that the Green Dot cards are commanding the lion's share volume in those stores. It's the leading brand in the category, and that the other brands tend to be secondary brands there. And the reasons for that, I think are, one, is that we were the first mover in the space. The Green Dot brand might not be well known to the people in this room, but to the unbanked and under-banked it's very well known.

And not only is it well known, it's associated with a very specific product. So when people see Green Dot, they know, okay, this a reloadable prepaid card. I can get my paycheck on it. I can use it to pay bills. I can reload it with cash. Whereas if they see another brand of another prepaid card that might be associated with something else, they might not immediately make that connection. So we found that the Green Dot brand is quite powerful. We've increasingly offered features and pricing that appeal to long-term users of the product. We're starting to see the benefit of that in terms of the retention and usage on our products -- that's increasing. And we waive monthly fees for customers who use the card regularly. We have a large fee-free ATM network. We've added Bill Pay and other features on the card, mobile apps that are very sticky for customers. And I think all of those things are helping to create a brand preference for our products that allows it to stand up and thrive even when other competitive products are introduced in the channel.

Steven W. Streit

No, I think you, gosh, covered that really well. No, I think that's all right. And also, we don't irritate people, so that's the best part of the halo of the brand. If people go out and use it -- I met with -- this is a really cool lunch I had and I can't say with whom because it would be a nonpublic statement. But I had lunch with a very famous African-American athlete, you'd all know, and when we were talking about it. And I was impressed to meet him. And his agent or his manager said, "Oh, this is Steve Streit. He started Green Dot." And the guy looked at me, “You started Green Dot?" He started going on. "My sister uses it, my mom uses it. Wow, I thought Green Dot was..." He just couldn't stop talking about Green Dot. I was there to get his autograph and to talk about some business. And then I came back to John. Well, he's out for lunch. But I came back to our Mark and said, "Gosh, I'd just had the craziest experience." But I often forget, because you're just so busy working, that if you're using one of your products -- we've been around for 12 years. That means that if you have children whose parents used it, of course they're saying, recommend it, and a tremendous number of our sales are still -- I'd better use this statistic on the earnings calls, this one is public, but something like 60% of all customers who said they bought a Green Dot card did so because either they knew and trusted the brand or a friend or a family member told them that's the brand to buy. That doesn't change because you put a brand X. If for years, you'd been drinking a Diet Coke because that's what he like, the fact that Diet RC now has a rack over here doesn't mean you abandon Diet Coke. I think that was a pleasant learning, if you will, in this competitive environment. Because we were unsure. we thought it, we believed it. The research thought it would be okay, but you don't know. And that was a really, really nice thing. So I think years of us trying to do the right thing, not abusing people, not having overdraft fees, not collecting after people, just kind of doing your thing. I think that card model, also, has paid off to where people understand how to use it, it's familiar. And no reason to stop.

Roman Leal - Goldman Sachs Group Inc., Research Division

You touched on two interesting topics: Pricing and trust. We'll get to trust in a second. But when we speak to investors, one of their main concerns is pricing; that the new competitive products out there simplify pricing or lower pricing. Is pricing something that you would consider doing in response to the new competitive threats? Maybe matching the kind one single fee a month type of -- another type of pricing strategy?

John L. Keatley

I mean, I guess a couple of comments on that. One is that, in general, our products have been performing very well despite the new competition. So I don't think there's the evidence out there that even when a product with lower or almost no fees is on the shelf next to it, we don't see a kind of mass exodus from our product to that product. So I think price is an important consideration when a customer picks a prepaid card, but it's not the only consideration which really isn't that different than any other consumer financial service. When you pick a credit card or your bank account, there are a number of factors that go into that decision, and price is one of them. We're all looking at better ways to price our products. In 2009, we did change our pricing quite a bit. We lowered several of our prices. We raised one, but on balance we came down a bit on pricing. There are a lot of different pricing levers in our product, again, as there is in most financial services. There's a fee to activate the card. There's monthly fees. There's potentially transaction fees. And there could be ATM fees. There are a number of different ways to adjust pricing levels. But in general, we don't see a lot of evidence that our average price level is really a major hindrance.

Steven W. Streit

Well, one thing that I want to point out is that it also helps if you're already at the bottom of the pricing fee anyway. There's a -- every fee Green Dot charges is on the back of the package and there's only 4 of them, right, so it's pretty clear to see what we charge and don't charge, and that's one of the hallmarks of our program. It has been for years, long before we had a regulator tell me, "Well, you were into disclosure before disclosure was cool." And that really is true because it's just all right there on the package before you buy it, because it's important. To me that's helpful. But there's --where our analysts get confused, investors get confused, consumers don't think -- do all the time, is if you have headline fees and if you have fees, right? For years, Washington Mutual for those of you who live in the West Coast had billboards everywhere that said free checking. But in reality, Washington Mutual customers paid more for a checking account than almost any bank in the country at the time, which is one of the reasons why they ran into so much regulatory hassle towards the end there. So you have headline fees. And the fact that one company says, "Hey, no monthly fee and this is -- oh, it's free." No, there's no free ATM network and there's no other kinds of fee waivers. So by the time you add it all up, well, if you get to one ATM, you've already paid more than you would've for the monthly fee of Green Dot, which has a free ATM network and fee waivers. So what we've learned is if you have headline fees and if you have all-in cost fees, and if you read any of the consumer reports that come out about prepaid cards, the Green Dot brand and the Walmart brand are almost always on the Best Buy list and almost always the first or second in terms of the cheapest value. So it isn't like we're the highest priced and trying to come down. We're a fraction of the cost of most of our competitors already. Now having said that, we may play with the upfront fee because that's a small part of our revenue. So you go on sale. We've done this for years. This isn't a new thing. You'd go to Walgreens and get it, no upfront fee. This week, at Rite-Aid, if you buy 2 cans of Coke, you get this or that. Well, that's just the way you market at retail. So we've always been that kind of stuff and still will.

Roman Leal - Goldman Sachs Group Inc., Research Division

Sure. Back to the issue of trust. There have been -- We've seen some large financially, very well-recognized brands come into the retail distribution space. And there are rumors that some of the banks who have introduced prepaid cards may soon want to be in retail outlets. How do you feel -- how is the loyalty of your product and how do you feel confident that, that's not going to really sway the accounts from your product to the major banks coming in?

Steven W. Streit

Well, gosh. We're already competing with Chase and Amex, and probably half a dozen I can't think...

John L. Keatley

Western Union, PayPal.

Steven W. Streit

PayPal. But you can only shoot the hostage once. At the end of the day, you have all these products on the rack and, everybody, the purveyors of doom and everything else, including Green Dot. We're about the biggest purveyors of doom, like oh my god. But it all happens, it rolls out. And you have one of your better quarters on the Green Dot brand side. We clearly have some challenges with the Walmart side. And you sort of go through that, and I think [ph] there's another 5 or 4 or 6 products on the rack depending on the retailer, and Green Dot brand is still really doing well. So if a -- I'll make this pretend. If a U.S. Bank product or a Chase product or whatever there was, U.S. Bank already has products on and [indiscernible] has for some time. But if you go through that and say, what might happen? The answer is, a, I'm not sure; b, my sense is if you wanted to open up a Chase account, you would've done so at some point over the past 140 years. And so within that, we'll see what happens. But we never take it for granted. But at the end of the day, it is what it is. If you have all the brands there and people load on the Green Dot, we'll see what happens. There's certain segments who I think would be more attracted to a major name bank because if you're a guy like me who grew up using major name banks. There may be some who would say, "Hey, that's the bank that took my dad's car," and they may not like that bank. And so you may see that today in research, right? But it is, I can see that. I hadn't heard that rumor, but it certainly could make some sense. And if that would happen, then we'll see how it will play out.

John L. Keatley

One of the things with finance is that having a strong brand in financial services that's not specific to prepaid isn't necessarily a big help in prepaid, and we've now seen this over and over again. A number of companies trying to take that brand and extend it into prepaid. I don't know exactly why that is. I mean, one theory is that it's because -- just product confusion. I mean, when you go into a retail store, there's a whole bunch of different kinds of prepaid products out there. When you see the Green Dot brand, you know exactly what it is. But if you see some other brand that's associated with a different kind of product, you might not make the connection that it's a reloadable prepaid card. But for whatever reason, I haven't seen brands really translating well from outside of prepaid into prepaid.

Steven W. Streit

But I will say this, the more -- and I remember saying this 1.5 years ago, maybe on this conference with you, that if big banks were -- at that time there was a rumor that the Chase would be liquidated and there was a rumor that U.S. -- well, U.S. Bank has had a program for 2 to 3 years and it's a pretty good program. They do a good job with it. But that, gosh, if big banks did this, would people stop going into retail stores? Who would buy a card at a retail store when you can buy it at a Main Street branch? The answer was, well, gosh, if they were to market this heavily, all it can do is help the category grow. And I think that's turning out in many ways to be the case. And I think if a big bank where to be on the shelf next us at a 7-Eleven or somewhere and they marketed the heck out of it, well, maybe that's a positive thing for the category. That's certainly a good question.

John L. Keatley

I mean, when we talk to customers about why they picked our card, they often say, "A prepaid card is better for me than a bank account for this reason." So to then have a bank account offering a card that's a prepaid card, it's kind of confusing to them. They tend to think of them as different things. But we'll see. It's hard to say.

Roman Leal - Goldman Sachs Group Inc., Research Division

Sure. If you put all of these together, how -- what's the process like? And can you determine what's your 4-year guidance is going to look like? Is there a worst-case scenario there, the Bank does come into retail or pricing does get compressed? Or are you really trying to gauge what you currently see in the pipeline?

John L. Keatley

We have -- there's a lot of stuff going on in the industry. So our visibility is not perfect, and we tried to apply some caution to how we guide, given the uncertainty out there. But I think we have a pretty good handle on the headwinds that we're facing now and the likely impact of those headwinds. And there were 2 big ones that played heavily into our guidance this year. One was the new competition in retail. And we're -- with every passing week, we get a better read on how those products are impacting our sales at those stores. And the other one are the new risk controls that we've put into place really over the past 12 months, a variety of new controls over that time period. And so we have some read on how those impact our activations and the rate at which we shut down or block cards after they've been opened. So those -- we have a not perfect, but we have a pretty good read on those headwinds, and both of those things played into our guidance for the year.

Roman Leal - Goldman Sachs Group Inc., Research Division

And do you have enough leeway, for example, if you did make a decision to roll out a pricing discount or a new strategy in the year? Or is that something that's not in the guidance and would be kind of something you have to incorporate?

John L. Keatley

Well, our guidance does not explicitly include a major change in kind of our average pricing level. We always are innovating and tweaking and making adjustments here and there. We generally do it in ways that we think will help lift volume to offset any lost revenue from the price change. But no, it does not anticipate some sort of major step change in our price.

Steven W. Streit

And I mean, to show you how that works with GoBank there's really no fees on the product side. So you have a voluntary monthly fee that you can pay us or not as you think we deserve it. But beyond that, there's really no fees on the account at all. So you can't get much cheaper than that, and we're going to push that hard, too. So we're experimenting and looking at what might work and what might not. But every time we made a change historically to pricing, like we did the fee waivers, the free ATM networks, GoBank is sort of standing at the opposite extreme, where it's so such a great value, it's such a great account at such low money, branded and targeted for a different segment. But every time we've done that, we've increased our revenue. I mean, look at our retention numbers now and what we're doing based on just treating customers fairly and making sure that we're not doing things that irritate people. It means a lot. And our fees, if you look at our major competitors in the industry, are oftentimes half or better than with our leading competitors are. And yet though, we're still the top revenue company by far in the industry and most profitable in the industry. So we do think there's sort of a Zen, a place to be with pricing where you need to do what you need to do to make sure you have a fair profit but not to the extent that you're ripping off your customers. I think customers know that and appreciate that, and it's part of what makes people want to buy the Green Dot brand despite having several other brands on the rack.

Roman Leal - Goldman Sachs Group Inc., Research Division

You talked about direct deposit there implicitly, and that was actually a bright part of the story for the last few quarters. What has really, you started -- what did you implement or what's been the strategy that really moved the needle there? And I think just broadly speaking, one of the major differences between you and your main competitor were the original or the core distribution channels, right? You were in retail. They're more in alternative financial services. And it made a lot of sense that folks that were in that channel were looking for an alternative bank account, and maybe not the same case with somebody that buys a card off a retail rack. But it seems like you're really starting to get some traction in direct deposit. So help us kind of sort that out.

John L. Keatley

I think there are a lot of things we've done over the years that have helped improve the adoption and direct deposit penetration. One of them is the way we price our products. So we give really -- I mean, if you are on direct deposit, our core Green Dot card is really the best deal in prepaid, bar none. I mean, it has a large free ATM network. The monthly maintenance fee is waived. We've continued to add new features with a very functional and now a great mobile app, online Bill Pay. So we have a great product for someone who's looking for a long-term use product and is going to enroll in direct deposit. And on the -- as we roll out new features, there are really things that appeal to that type of customer and prompt them to keep the card longer. The mobile app is a good example. We find people that have downloaded mobile app and use it to find free ATMs and check their transactions and check their balances and maybe even write checks or do bill pay, those are customers that are going to keep the product for a long time. And that's really helped drive the retention.

Roman Leal - Goldman Sachs Group Inc., Research Division

You've had some really good distribution wins recently. Help us think through the ramp-up in impact accounts and distributions. When you have a new partner and you roll it out, there's always market expenses associated with that before you get to revenue. But you have -- you've had a number of wins in your entire history. So how do we think about the curve there where you really see some revenue impact from new wins?

John L. Keatley

Yes. When we launched new retailers, there's usually a ramp just in getting the new card activations up to a kind of a steady-state level. That requires getting the packages and the displays out to the stores. So that's usually a several-month, call it, a 6-month kind of ramp. And then we'll continue to ramp from there, but sort of the steep part of the ramp is that first 6 months. And then of course, that's just the activations. It takes a while to build an active portfolio that really generates revenue on an ongoing basis. So that takes another, call it 12 months. So there's often something like an 18-month ramp until your revenue from that new partner is really starting to be material and kind of hit a stable level. So that's what we'd expect from new retailers that we're launching now.

Roman Leal - Goldman Sachs Group Inc., Research Division

Okay. And on the flip side, I think recently both you and your competitor have lost some distribution partners. And you lost them more because you've decided that, "Hey, although this is a pretty good product, but I want to do myself and get more of the economics and then take it really in-house." Is that a major concern with your partners? It feels like it's concentrated in certain verticals?

Steven W. Streit

No. Well, we learned some good lessons. I mean, the only one that's ever happened to us was, and this [indiscernible] deal. I don't think we've ever lost one, never, in all of our 12 years. And that was one that at first, we were sad about it. And then when we learned more about it, we were like -- it's a little bit of a blessing in disguise because we learned so much about the -- we got a great MBA in tax fraud management as a bank, so in that regard, it was a blessing maybe. But that's the only time. And as you know, within a year, they said "to heck with this" and they put it back up for bid and our competitor got that. And it can be a good program, and I hope they do really well with it. But we've learned a lot about this private label in general and what kinds of partners to dance with. And the lesson we learned as a company that's a little bit older now and more mature, both mature meaning our own age and as executives. And as you just learn things in the marketplace, and -- that it used to be where every deal is a good deal -- the Justin Bieber card. "Oh, let's bid that," you know? Whatever -- which actually is a real card, by the way. I'm not sure who's using it, but there you have it. If you have a 12-year-old daughter, you get her a Justin Bieber prepaid card. And they pitch everything. And then you sort of sit down and realize that the best helping hand you have is the one attached to your own arm; and that we have such a fabulous brand. We have so much distribution around the country. So much equity in terms of how we run our company. The assets we have with our own issuing bank and our own capability to control our feature set and now the best mobile technology of any bank holding company in America. I can say that I think with some fair certainty. If anyone here has used a GoBank product, it will blow you away. If you haven't tried it, you need to. Chris Mammone over here, Head of IR, can put you on the list and we'll light list [ph] you and get you on the accounts. You can play with it. And so we looked at that and we realized that opportunities are probably best by not distracting ourselves, by being the moth that has attracted every bright lightbulb. And it's actually made a huge difference in how we run the company. It's part of the maturation of the company. But that was the only one we ever lost, and it is what it is.

Roman Leal - Goldman Sachs Group Inc., Research Division

Okay. And then the Walmart partnership, it's still a good partner. But obviously, it includes competing products now. What type of growth are you expecting in your Walmart versus non-Walmart distribution? What's kind of baked into the guidance?

John L. Keatley

Well, our guidance, as you know, has revenue actually declining a bit from 2012 to 2013 as a result of the new competition and the new risk controls. In our business, revenue tracks pretty closely to active cards, so we're actually expecting our active cards to decline a little bit this year and then resume growth in 2014 once we get pass those headwinds. We haven't broken out our guidance specifically to any one retailer, but Walmart being both a very large partner of ours and also being subject to some new competition, you can probably kind of get a sense of what we might be expecting there. And as we've said in the past 2 quarters, what we've seen at Walmart is -- the Bluebird card has, well 2 things. The Bluebird card and losing some shelf space in the store has impacted our card sales there but not in a devastating way. So what we believe to be happening there is that the Walmart MoneyCard is still commanding a very large share of all sales in that channel. So we would expect that to continue to be the case going forward.

Roman Leal - Goldman Sachs Group Inc., Research Division

Okay. We're going to take a pause and see if there are any questions in the audience. If not, I'll ask a few more.

Unknown Analyst

I'm curious. On the prepaid side, presumably you don't know who the actual customer is. I'm wondering when...

Steven W. Streit

Oh, yes, we do.

Unknown Analyst

You do? You know the actual name?

Steven W. Streit

Yes.

Unknown Analyst

Do you track customer-level profitability, card-level profitability, as well as programs and retailers, so when you make changes, you're doing it with the knowledge of not just on the usage fee side but how much they're consuming of ATM networks, which are costing you money and stuff like that?

John L. Keatley

Right. Yes. We do. I mean, one good thing about the business that we're in is we do have a lot of data on our customers and how they use it and where they shop and which ATMs they go to. And there's a pretty wide range of profitability on different customers. You've got the customer who buys a card and does a couple of transactions and never reloads it to somebody who's using it as their bank account and doing thousands of dollars a month. So we have a good sense of why certain customers are more profitable than others and the tweaks or adjustments we can make to improve profitability in each of those segments.

Unknown Analyst

And are there segments that are either strictly unprofitable or -- are there any unprofitable segments that you need modification? And a flip side, is there really a sweet spot in any type of customer program that you would describe?

John L. Keatley

Yes, there are very few customers that are actually unprofitable in aggregate. And it would take a pretty unique combination of behavior to do that. You could imagine someone who loads the card and never spends money and only with a certain ATM machines and then calls the call center a lot. That is -- something pretty unusual like that. But yes, I mean, we can make tweaks and adjustments over time to improve the profitability within each of those segments.

Roman Leal - Goldman Sachs Group Inc., Research Division

Any other questions? Okay, maybe -- I've got one here.

Unknown Analyst

So you've talked about revenues in active cards declining this year as an effect of losing market share, but then after next year, growing again. How do you see that growing? Is that the same way as you see the market growing? Or can you talk a little bit about how the interplay between market share and market going forward?

Steven W. Streit

Yes. Although to be fair, I don't really know that we're thinking we're losing market share. I think that a lot has to happen for a card to become active, and then I'll let John answer the more mathematical question. But if you buy the card, then you have to call to register the card. And to the earlier question, these are all FDIC-insured bank accounts. They're not make-believe Toys R Us gift cards. I mean, the answer is just like opening up that account at any bank in the country, by law, you're going to be Patriot Acted and we're going to get your social and your name and your date of birth run you through the screens and do add a wallet and everything else we're going to do to you. So these cards are a lot harder to get today than they were 15 years ago or 12 years ago. But first, you have to buy the card; then have to go through activation and pass that hurdle, and then you have to go and get the card. If you pass that hurdle, then you have to go and reload it and become active. So a lot of things, so we talk about active cards. So when John says we think active cards will be down. He's always cautious, as he was again in this session, to say yes, it's competition but it's also risk controls which tightens the screen. And so the implication is once you reset your screen on the funnel, let's say, of customers coming in and whoever's going to roll out on this retailer or that retailer is rolled out, you're going to do something with your numbers but then you've done it. It isn't a continuing, ongoing -- you're not going to ratchet up risk controls every year just for the fun of it. And you're not going to have 100 products on the rack, so at some point, you sort of hit your steady-state of operations. And then they begin to grow from there, and the year-over-year comparison is looking far more robust. I think that's what you're alluding to

John L. Keatley

Yes, and then as we -- and that really covers the situation in the general purpose reloadable segment pretty well. But there are other channels, where we're really growing from zero that should provide some incremental growth on top of that. It will allow us to grow faster than the market as a whole. With GoBank, we're really starting from scratch in terms of the consumer checking account market. With Sallie Mae, we're entering the education space for the first time, which is a pretty large market. So those are opportunities for us to grow faster than the market.

Unknown Analyst

I'm just wondering if you could give some insight into what happened to your rejection rates prior to the increased risk controls.

Steven W. Streit

I don't think we can, actually, on that one.

John L. Keatley

Yes, I think we can't provide really specifics. But what we have said is that the decline rates, we always had a fairly significant decline rate. It was single digits but significant, as we were always checking people's Social Security numbers, names, addresses and verifying other information. And now as we've tightened it up further, it's roughly doubled. So it's gotten a lot higher.

Unknown Analyst

And can you just describe how that process works? If someone buys a MoneyCard at Walmart, they go to register, I guess. And then how does the rejection process work?

Steven W. Streit

Well, you would get through them -- I apologize for being a little opaque here. Risk controls at a bank are kind of like the secret sauce of how you comply with regulation, so I just don't. I want to be cautious. Let me answer it in a different way. We want to be sure that if you say your name is Joe Blow and you live at Mockingbird Lane, then you truly are that Joe Blow at Mockingbird Lane. And every time you read in the newspaper and online about a data breach at this merchant processor or a data breach at this retailer, I think people read and say, "Well, that's interesting," only they're realizing that $1 million, $5 million, $25 million depending on the size of the merchant processor, names, addresses, card numbers, social, date of birth, sometimes even mother's maiden name, and God knows whatever was in that file gets leaked out to fraud rings in Russia and in Iran and all over the place. Nigeria's a big country for that. And it's imported quite frequently to the United States. So they just rolled out there. And so you could use a very standard match and say "okay, well, this guy had all the right information, and so he must be him." Then you realize you can't. So there's a lot of techniques that we now employ as technology gets better, and we do everything from, oh my gosh, there's no one control. There's probably a mix of 7 or 8 from device tracking, to geolocation to comparing previous fraud on a social security number used. Have a lot of questions about cards you used to own or universities where you graduated, things that a crook can't steal from a data breach, right? And you kind of put that all into the hopper. An sometimes it's just -- it looks weird. Why did somebody put that much money on 3 in the morning at a card here but activate it 2 days later at a different location? So you're just sort of making rules that are automated because you can't make it if you sell millions and millions and millions of accounts every year. So you can't have somebody deciding, like in the old days at a community bank on every loan. But you have a tremendous technology that helps you separate the wheat from the chaff. We try to get it right more often than not. We actually catch some honest, good people and for whatever reason, their behavior. Listen, I get caught up all the time on my Chase credit card for doing nothing wrong. It's just that I travel a lot. So literally, I'll be in a different state in the morning than I am in the afternoon, and that triggers their fraud alert. So sometimes you get honest people in that trap as well. But we think ultimately, the benefit is great because Green Dot envisions itself for better or for worse. As an investor, you have to decide. But we're not necessarily obsessed about the quarter. We're obsessed about the combination of many, many quarters because we're a serious company. We're a bank holding company regulated by the Federal Reserve. We have millions and millions and millions of customers nationwide. We have new products coming up that we think can expand the company further. And I'm not going to jeopardize my company or my bank to do something goofy in order to juice some, one particular quarterly earnings, that numbers. That's not worth it to me and not worth it to our investors, I would hope. Certainly not worth it to our board. So John might have alluded that, that the answer is you always do it right, what's right. Always. And then the good stuff will come your way when it's ready to come your way. And we try to behave in a strategic and thoughtful fashion. So that's probably all I want to say about risk because if you start to get into decline rates and what we do to decline it, it's -- and then as soon as I tell you that, we may change next week. We have a team of risk professionals who I get together every week with them. The guys, what they're seeing it's just interesting to learn.

Unknown Analyst

I guess part of my question, though, was if somebody spends $5 for a card at Walmart, and then somehow they find out in the future that they've been declined, if it's a criminal, they're not probably not going to dispute that. But if it's a legitimate...

Steven W. Streit

You'd be amazed. So the guys we screen a lot are the crooks. But no, they can spend the money down. We just don't make it a reloadable card. So in Green Dot land, if you were to buy a card and we declined you because we couldn't match you in an appropriate fashion to ensure that you were that person who you said you were, what we'd say is, "Sir/madam, I'm sorry. We can't activate this card and make it reloadable. We're not going to send you any card with your name on it to your address. But you have a temporary card in the package. You put $50 on it, whatever it was. Feel free to spend it down and throw it away when you're done. Thanks, and have a nice day."

Roman Leal - Goldman Sachs Group Inc., Research Division

We'd like to end this on a positive note, where possible. So you have a very favorable net cash position, note down the balance sheet. When can we expect a buyback from the company?

Steven W. Streit

Well, I thought we got the whole session done and not a single buyback question.

John L. Keatley

Not anytime soon. We're -- as I said, it's a very dynamic time in the industry's development. We think there are good opportunities out there. We want to hold onto cash right now to pursue really accretive acquisition opportunities and have it available to capitalize our bank. If these new products that we're launching really take off and explode, we'll need the extra capital to have ready to capitalize our banks. So not anytime soon.

Roman Leal - Goldman Sachs Group Inc., Research Division

Great. That's good. With that, thank you so much. We appreciate it. Thank you.

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