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The good news for prepaid card program manager Green Dot Corp. in the fourth quarter: purchase volumes, revenues, and active cards all increased. The bad news: American Express Co.’s new Bluebird prepaid card now being sold at Wal-Mart Stores Inc.’s U.S. stores is taking some business from Green Dot’s own card for Wal-Mart customers.
At MasterCard, meanwhile, the profits rolled in, but the No. 2 payment card network’s U.S. debit boom is slowing.
Pasadena, Calif.-based Green Dot said purchase volume on its cards hit $3.23 billion, up 13% from $2.86 billion in 2011’s fourth quarter. Active cards increased 4% to 4.37 million from 4.2 million a year earlier. On the financial side, operating revenues, which include interchange and fees, hit $137.3 million, up 15% from $119.1 million in 2011’s final quarter.
Chairman and chief executive Steve Streit told analysts at a conference call late on Thursday that one reason for the good numbers is that the quality of Green Dot’s portfolio is improving. Two measures of quality are reloads and usage of direct deposit, indicators that the customer is likely to stick around. “In fact, reloading customers increased 9% year-over-year and total funds loaded to cards via direct deposit increased by 10% year-over-year,” he said, according to the Seeking Alpha transcript service.
Streit contrasted Green Dot’s Wal-Mart vs. non-Wal-Mart businesses. The non-Wal-Mart side is holding its own, even prospering and building brand recognition, in the face of increased competition from other prepaid cards that stores sell, he said. At Wal-Mart, however, “we have challenges.”
Wal-Mart is critical to Green Dot because about 60% of the company’s revenues originate via the world’s largest retailer. Green Dot manages the Walmart MoneyCard, a general-purpose reloadable card issued by General Electric Co.’s GE Capital Retail Bank. Green Dot’s status as Wal-Mart’s main prepaid card partner fell a notch in October when Wal-Mart and AmEx unveiled the Bluebird card. At the time, however, Wal-Mart said it was still committed to the MoneyCard.
“While there are lots of reasons for optimism on the Green Dot retail side of the house, we have challenges at Wal-Mart, where MoneyCard activations fell under pressure in Q4, down 14% year-over-year,” Streit said. Green Dot’s total activations for the quarter fell 7% to 1.85 million. But Streit said active Wal-Mart cards actually increased by 3% and revenue from Wal-Mart grew 14%.
Still, Streit acknowledged pecks from Bluebird. “We believe the activation declines at Wal-Mart are primarily due to lower unit sales resulting from A, lost shelf space for our product to make room for the American Express product; B, new risk controls that are rejecting a higher number of customers who attempt to activate MoneyCard, and C, customers who have chosen the purchase of [a] Bluebird account instead of the MoneyCard,” he said, according to Seeking Alpha.
More Wal-Mart-related troubles lie ahead. Under a 2010 contract, the commission Green Dot pays to Wal-Mart on MoneyCard sales will increase in May by about 400 basis points (4 percentage points), according to Streit.
Green Dot is attempting to meet the challenges by reducing costs, including issuing prepaid cards directly through its new bank subsidiary, Green Dot Bank, for its non-Wal-Mart programs instead of using outside issuers, and building new businesses such as its GoBank mobile account now under test. The company increased sales and marketing expenses by nearly 23% to $52.4 million in the fourth quarter. The greater marketing spend helped reduce net income by 34% to $8.71 million.
The profit situation is different at MasterCard, which on Thursday reported net income of $605 million for the fourth quarter, up 18% from $514 million a year earlier when a special item is excluded. Net revenue grew 10% to $1.89 billion.
MasterCard’s U.S. debit card purchase volume rose 11% year-over-year in the fourth quarter to $116 billion. That grow rate represented a slow-down from 13% in 2012’s second and third quarters, and 19% in the first.
While MasterCard still trails debit market leader Visa Inc. by a wide margin, it has picked up more volume in recent years from new or expanded bank contracts. And MasterCard’s Maestro PIN-debit network has benefited from new volume as a result of card issuers adding more network options for merchants to comply with Durbin Amendment transaction-routing rules. Those rules took effect last April.
Total fourth-quarter transactions processed on MasterCard’s worldwide network grew 20% to 9.22 billion. Not quite half of that growth came from new PIN-debit business in the U.S., chief financial officer Martina Hund-Mejean told analysts. But she expects processed-transaction growth will slow in the rest 2013, in part because the one-year anniversary of the routing rules is coming up and also because some new issuers will have been on the network for more than a year.
In contrast to debit, MasterCard’s U.S. credit card purchase volume grew only 4% in the fourth quarter to $140 billion.
