Payments Views

Allen Weinberg

Green Dot’s New Mobile-Optimized Bank Account

I had the opportunity to attend the launch event of Green Dot’s new GoBank yesterday (1/15/13) in San Francisco and came away quite intrigued. Sure, there are a plethora of financial services targeting the unbanked and underbanked, but what I found most interesting was Green Dot’s focus on the “unhappily banked” and those new to the banking system, like my two teenage sons.  If fact, I found myself listening to the product introduction through the eyes and ears of my 17 and 20 year old kids in an effort to gauge how appealing GoBank would be relative to the accounts I already opened for them with Wells Fargo and PayPal.

Steve Streit, Green Dot’s CEO, started by laying out how he views the banking landscape today – his perspective on fee-laden big-bank checking (citing a report showing an average of 38 separate checking-related fees as well as the huge percentage of people who simply distrust and hate their banks), online banks (saying online banks are not designed for low balance, transactional banking), credit unions (small ATM footprint), and non-banks such as Simple, Movenbank, and AmEx Serve/Bluebird. He pointed out that non-banks solutions are often innovative, and are low cost to consumer­­—but there were drawbacks as well, such as the lack of FDIC insurance, etc.

Steve contrasted GoBank to non-banks and startup ventures several times, reinforcing his point that by being a bank itself, Green Dot wasn’t just a program manager for third-party providers, nor were customers at risk of dealing with a startup. He was quite adamant in his belief that customers would prefer to deal with an FDIC-insured bank that would be able to offer more innovative products and better pricing.  And he did, of course, compare GoBank’s features and appeal to prepaid products, currently their core business, noting where prepaid falls short on functions and features.

Green Dot is positioning GoBank as a new brand in a new product category.

Starting with a blank canvas, it was designed from a mobile perspective, leveraging the talent from Loopt, which Green Dot acquired in early 2012. Customers, for example, can opt to check their balances on the app’s home screen (“80% of interactions”) without logging in. Ditto with finding nearby free ATMs. The company is also stressing how easy and fast it is to enroll and use the service from a mobile device, designing the service with no assumption about the customer having access to a traditional computer-based browser.

Some of the core features include the ability to send money to anyone via text, email, or Facebook. If your landlord or other intended recipients are not enabled for electronic bill pay, they’ll mail out a paper check.

They’re also emphasizing the ability to use 42,000 free ATMs in the US, and figure that quoted as over two times the ATM footprint of Chase and Bank of America. If customers use ATMs outside of the surcharge-free network, they’ll pay a typical $2.50 fee.

They demonstrated a personal budgeting tool, called “Fortune Teller”, with a cute, Schnauzer-based “can I afford it?” feature. Maybe a future release will give customers the option of taking financial advice from a cat.

Other features include the ability to add an integrated FDIC-insured savings account, robust and customizable alerts, the option to put a photo on the debit card (for a $9 fee), remote deposit capture, and the ability to add cash to the account for free at Walmart and other retailers. Funds can also be added from a debit card, as long as it belongs to either the customer or a parent.

From a revenue perspective, Green Dot is positioning the service as ‘fair” to consumers with no overdrafts fees, no penalty fees, and no minimum balance requirements. They have six revenue streams:

  1. Interchange on debit card purchases
  2. $2.50 out of network ATM fees/$1 for a balance check
  3. 3% foreign transaction fee (fairly typical)
  4. $9 to customize the debit card
  5. Float
  6. Voluntary monthly fees

Voluntary monthly fees is a new concept, especially in financial services! Green Dot described this approach as “fair” and “respectful” to the customer, and “putting the customer in control to either punish or reward the bank depending on how they feel about the bank at any point in time”.  They didn’t show the user interface on this, but I imagine it to be a how-are-we-doing slider bar that lets the customer pay anywhere from $0 to $9 per month depending on their satisfaction. It will be interesting to see if customers continue to behave as they did in Green Dot’s market tests, paying something like $3/month. Either way, Green Dot says the product can be profitable without the voluntary fees.

Digging down a bit into the P2P transfer features, recipients that are not GoBank customers can receive their funds via PayPal, with no fees assessed on the sender or receiver.

So back to competitive positioning — Why Green Dot? From their perspective they’re now a bank and can market themselves as a bank.  They’re in control of the product, functions, and features versus being a “third party reseller”.  They’re already at scale from an infrastructure perspective.  They have deep mobile expertise.  They have requisite financial resources – $300M in cash, with no debt.  They have a corporate culture of innovation (how many banks have the guts to proclaim that?).  They believe they have efficient customer acquisition strategies (e.g., a distribution network of 60,000 retailers).  Plus they have cash deposit locations.

All in all, Green Dot thinks GoBank can be bigger than their prepaid business.  I can’t wait to try it. But the real acid test will be giving a GoBank account to my two teenagers to see how they like it.  Stay tuned!