Green Dot Corp. is expected to launch its first IPO later this week. Analysts predict shares being priced between $32 and $35.
Going Public
Green Dot’s ticker symbol is NYSE:GDOT and there are less than 4 million shares that are being offered. Many are citing continued growth in the prepaid card market as one reason this public offering will be so lucrative. Existing shareholders will be able to further monetize their holdings while Green Dot itself will receive no proceeds from what’s projected as a $130 million IPO. Shares are being made available for new investors, too.
Driving Force
As mentioned, the prepaid debit card sector is growing by leaps and bounds as more Americans are increasingly becoming either unbanked or unbankable. Impressive growth has been happening with what’s referred to as ‘open’ offers. Described as a co-branded effort, the credit card big names, such as MasterCard, Visa and even AMEX, offer consumers many of the same options as those who are carrying the network credit cards.
Many are using prepaid cards for government benefits, income tax refunds and direct deposits from their employers. Not only that, but prepaid cards are generally accepted anywhere the traditional credit cards can be used. Consumers also use the prepaid cards for online shopping and bill pay. Fees are generally comparable to what bank customers pay, though there are those offers that appear to be overly zealous in fee structures.
A Piece of the Pie
Another interesting dynamic are the third parties involved with prepaid card transactions. From the ATMs and point of sale (POS) transactions, retailers are cashing in, too. This is further incentive for those looking to buy into Green Dot as the issuer and transaction processing entities generate revenue from a disclosed fee schedule. This will certainly result in a brighter spotlight being focused on the sector and with that, efforts for more regulatory changes are sure to follow.
If most consumers are not good candidates for high usage, prepaid debit cards, then one must consider when this prepaid market will hit the wall and stop growing in the US. Probing for answers leads to a review of when the higher growth prepaid card applications will stop growing or adding new cards, to the base (e.g., payroll cards). A companion review of reloadable transaction volumes adds a second dimension to the answer. If both dimensions hit slower growth rates, then the overall prepaid card market will slow down to single digit growth rates and the buzz will fade away.
A Ceiling
The question will eventually be asked: where’s the ceiling and when will investors begin to feel the pressure associated with that ceiling? There are few, if any, analysts who predict this will occur in the next five years. In fact, the number of Americans is expected to double within the next five years. Few would speculate past that and for good reason: the recent recession proved that too many long term predictions can only result in big disappoints if and when they fall short.
