Green Dot's Prepaid Reload Network Makes Strides With Card Networks and Issuers

Implications: Implications: With a compound annual growth rate of 9.37% the prepaid card market has plenty of banks and merchants eager to jump in the market with open-loop and closed-loop prepaid transactions forecasted to exceed $236 billion by 2009, up from $165 billion in 2005. The closed-loop prepaid market (proprietary cards that can only be used within the issuer's environment -Walmart, Best Buy, etc.) is forecasted to exceed $192 billion by 2009, which reflects a CAGR of only 6.25%. On the other hand, the open-loop market is a smaller segment (cards branded by one of the card networks -Visa, MasterCard, etc.) will grow to a CAGR of more than 32% by 2009, with a total spend of more than $43.8 billion. With this kind of growth its no mystery why banks and merchants are eyeing the prepaid market to create a strategy for entering the market to capture market share. Green Dot's management and implementation expertise has positioned them as the "go to" network for prepaid reload programs. 

Analysis: Comments/Perspective:

Green Dot has built a solid infrastructure and prepaid card reload network that has gained the trust of powerhouses MasterCard, GE Money and its 40,000 plus merchant partnerships which allow issuers and merchants the ability to build their own prepaid card reload programs which can provide a steady stream of fee income to banks, merchants and networks. Prepaid cards have grown in recent years and much of the growth has been driven by disposable gift cards. With reloadable prepaid cards merchants can collect initial fees and charge additional fees for each reload transaction.  Merchants then share these fees with acquirers, issuers and networks.  Green Dot has carved out a niche in the prepaid reload market and issuers, merchants and networks are joining Green Dot's reload network to build a fee revenue by offering prepaid reloadable cards.

1.  Reload transactions flow in the opposite direction of standard credit and debit payments with acquirers making guaranteed settlement deposits with issuers after merchants have collected cash value

2.  In both systems issuers collect standard debit interchange which is about 1.3% on each prepaid transaction, so they benefit from extending the life of prepaid cards through reloads

To ensure issuer participation MasterCard changed its pricing model for reload transactions and passes its 'rePower" transactions at no interchange cost to participating partners.  Rather than building its own infrastructure MasterCard is relying on Green Dot's network to grow transactions volumes with its prepaid reload network.