

Green Dot: The $2 Billion IPO You’ve Never Heard Of - e1ven
http://techcrunch.com/2010/09/28/green-dot-the-2-billion-ipo-youve-never-heard-of/

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machrider
That's funny, I hadn't heard of Green Dot until a couple weeks ago. I received
a Green Dot card as a gift and was frustrated with the required phone
registration process. They immediately asked for name, DoB, and SSN,
apparently because the PATRIOT act requires it. This seemed like a pretty big
invasion of privacy for something I didn't personally opt into. They will also
kindly deduct $5.95/month from the balance every month that it goes unused
(which is illegal in many states, as far as I know).

Fortunately they will cut you a refund check if you ask for one on the phone.
Note to (monetary) gift givers out there: cash is still king.

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FluidDjango
Someone mentioned in a TechCrunch comment that there are other (up-and-coming)
start-ups working on models that may be more customer-friendly.

Anyone know of competitors to green dot?

...I'd like to hear about some alternate business models being used for these
services.

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rms
Simon Malls sells non-refillable American Express cards for $2.99; no monthly
fee. There is no billing address associated with the credit card and in person
at their malls they don't check ID for orders under a certain dollar amount.

<http://www.simon.com/giftcard/>

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lzw
They are able to do this because the amount of balance on the card, and the
features of the card (not certain which ones) allow them to operate this card
as a gift card, rather than a "Bank Account" which is what the PATRIOT ACT
defines the other such cards as.

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jakarta
There are some negatives to Green Dot's business model. Here are a few things
that were pointed out to me last week:

-Barriers to entry are pretty low. Walmart has already lowered fees from $9 to $5 for a new card and from $5 to $3 for monthly maintenance. NetSpend, AccountNow, Russell Simmons' RushCard are all in this business and more competitors appear to be sprouting up. Blackhawk Networks (owned by Safeway) just announced they are entering this business.

-50% quarterly churn rate. That means every 6 months Green Dot has to find an entirely new customer base to replace the one that left. My guess is the rate is high because of the monthly fees.

-A lot of people will be wowed by the company's massive growth rate (722k stores in 2006, 3.1M stores in 2009). But it is all almost entirely due to Walmart adopting their product. I am not sure if depending on Walmart for your future success is entirely beneficial, they have a reputation for bringing costs to the bare minimum. The variable costs for issuing a new card are so low that I think this is a major possibility.

-Then there is the outrageous valuation. 46x earnings, 25x book value. This is a pretty pricy company and I think competitors are going to pounce on their space, bringing down margins and customer activations. A 10% drop in pricing with a 30% drop in customer activations makes the company barely profitable.

In Jan 2011 the lock up on insider sales goes away. I expect during that time
we'll see a ton of selling.

Also if you want to learn about this industry here are some great resources:

paybefore (magazine)

www.cfsi.org (Center for Financial Services Innovation)

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johnglasgow
I wrote this in the TC comments, and will echo it here:

"This article was not very well written IMHO. The big exit was for the Tech
Coast Angels investors who had over 100x. Criticizing Zappos for their 1B+
exit vs Green Dot's 2B exit is an awful argument. Not only are they both in
the low billion dollar range, but Sequoia forced Zappos to sell. This was
widely publicized in Tony's blog post about it.

I've heard Steve speak give a keynote, and he had a standing ovation. Truly an
inspiring entrepreneur. He deserves every cent he earns from the IPO."

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sanj
I hate this product. My relatives give them as gifts because our culture needs
to wrap actual money in some level of indirection in order to make it feel
"gifty."

The cost of that -- $2-6/mo -- is too damn high, and is the basis of the
profit of this company.

Give cash. Help sink this entire business model.

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rufugee
What always boggles my mind about about startups like this is the fact that
their very existence is dependent on a giant company that could roll over and
squash the life out of them. Their first product was a pre-paid
Mastercard...which implies that they actually had to approach Mastercard with
their idea. The idea makes sense and is a bit of a no-brainer...and one can
suppose that Mastercard themselves had both the technical capability and
resources to do it on their own...so what stopped them? How can a small idea
guy feel comfortable exploring ideas like this with large corporate giants?

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goatforce5
As I understand it: Mastercard's customers are the banks, and not the end
users who hold the cards with their logos on them. Their job is to operate a
network that interconnects the banks so they can process transactions for each
other.

Them offering prepaid (or even straight-up credit) cards to end users directly
would be a huge shift in how and why they do business.

