7 ms·

Green Dot: The $2 Billion IPO You’ve Never Heard Of

68 points by e1ven 16y ago

johnglasgow 16y ago
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."
machrider 16y ago
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.
- FluidDjango 16y ago
  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.
  - rms 16y ago
    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/ http://www.simon.com/giftcard/
    - lzw 16y ago
      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.
  - gexla 16y ago
    AccountNow is another one and has a much higher limit for how much you can fund to your account and keep there ($10,000 vs $2,500.) These services are quite valuable for people who are unable to get checking accounts because they got themselves reported to the "chex system" which is basically the equivalent of a bad credit report but only used by banks.
  - pxlpshr 16y ago
    Yes. Another prepaid card company called NetSpend filed to IPO this year too. The original founders of NetSpend, Roy and Bertrand Sosa, are hispanic immigrants and pioneered the prepaid model before GreenDot after recognizing a gap in the industry. As the story goes, they created NetSpend with only $750 in their apartment living room. They later left NetSpend to found MPOWER Group in 2007. Our company was acquired by one of the MPOWER companies this year, and we couldn't be happier about the leadership and long-term vision here. The Sosa brothers are extremely genuine people. This time they're taking a closer look at banking and underserved markets, and it's a great time for the right kind of innovation in this industry if you ask me. Last ~2 years have been spent building out product and a multinational infrastructure, I think you'll start hearing more about MPOWER in the near future as they ramp up marketing and social media efforts here in the States. http://www.mpowerlabs.com http://www.mpowerlabs.com http://www.mangomoney.com http://www.mangomoney.com http://www.revworldwide.com http://www.revworldwide.com http://www.yapsend.com http://www.yapsend.com
- lsc 16y ago
  the problem, I think, is that anyone offering 'private' electronic money is going to go the way of e-gold. The government simply won't tolerate it. (I'm not making any statement about the legitimacy of the government blocking private currencies... I'm just pointing out that the historical evidence has been that the government won't tolerate private electronic money.)
  - ynniv 16y ago
    What about Green Dot is an alternative currency?
    - sethg 16y ago
      If someone could buy a prepaid debit card for cash without showing ID, and add money to it without showing ID, and spend from it without showing ID, then Alice could buy a card, Bob could load $5000 onto it, and Carol could read the card number over the phone to David. To achieve the same kind of anonymity today, someone would have to accumulate $5000 in cash and put it in David’s physical possession.
    - lsc 16y ago
      I don't think the government minds alternative currencies. The possibility of easily shifting large amounts of currency anonymously, I think, is what the government has a problem with. Because green dot checks id, etc... it's not a problem. If E-gold asked for your ID, your SSN and reported things as a bank would from the beginning, I don't think e-gold would have had an insurmountable problem, either. By "private" I meant "allows anonymous users" not "owned by someone other than the government." which is very unclear. I've been up all night working and my grammar is degraded.
      - ynniv 16y ago
        Your comment used to say "alternative" where it now says "private electronic". This drastically changes the meaning, and makes my comment irrelevant.
- patio11 16y ago
  It isn't specifically the Patriot Act, it is a Treasury Regulation called "Know Your Customer (KYC)" aimed at preventing money laundering. We've had similar requirements for essentially forever, but they became more explicit recently. The specific mechanism is up to the individual bank / financial services firm.
rufugee 16y ago
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?
- chopsueyar 16y ago
  Giants are not nimble.
- goatforce5 16y ago
  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.
jakarta 16y ago
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)
sanj 16y ago
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.

68 points by e1ven 16y ago

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."

machrider 16y ago

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.

FluidDjango 16y ago
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.
- rms 16y ago
  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/ http://www.simon.com/giftcard/
  - lzw 16y ago
    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.
- gexla 16y ago
  AccountNow is another one and has a much higher limit for how much you can fund to your account and keep there ($10,000 vs $2,500.) These services are quite valuable for people who are unable to get checking accounts because they got themselves reported to the "chex system" which is basically the equivalent of a bad credit report but only used by banks.
- pxlpshr 16y ago
  Yes. Another prepaid card company called NetSpend filed to IPO this year too. The original founders of NetSpend, Roy and Bertrand Sosa, are hispanic immigrants and pioneered the prepaid model before GreenDot after recognizing a gap in the industry. As the story goes, they created NetSpend with only $750 in their apartment living room. They later left NetSpend to found MPOWER Group in 2007. Our company was acquired by one of the MPOWER companies this year, and we couldn't be happier about the leadership and long-term vision here. The Sosa brothers are extremely genuine people. This time they're taking a closer look at banking and underserved markets, and it's a great time for the right kind of innovation in this industry if you ask me. Last ~2 years have been spent building out product and a multinational infrastructure, I think you'll start hearing more about MPOWER in the near future as they ramp up marketing and social media efforts here in the States. http://www.mpowerlabs.com http://www.mpowerlabs.com http://www.mangomoney.com http://www.mangomoney.com http://www.revworldwide.com http://www.revworldwide.com http://www.yapsend.com http://www.yapsend.com
lsc 16y ago
the problem, I think, is that anyone offering 'private' electronic money is going to go the way of e-gold. The government simply won't tolerate it. (I'm not making any statement about the legitimacy of the government blocking private currencies... I'm just pointing out that the historical evidence has been that the government won't tolerate private electronic money.)
- ynniv 16y ago
  What about Green Dot is an alternative currency?
  - sethg 16y ago
    If someone could buy a prepaid debit card for cash without showing ID, and add money to it without showing ID, and spend from it without showing ID, then Alice could buy a card, Bob could load $5000 onto it, and Carol could read the card number over the phone to David. To achieve the same kind of anonymity today, someone would have to accumulate $5000 in cash and put it in David’s physical possession.
  - lsc 16y ago
    I don't think the government minds alternative currencies. The possibility of easily shifting large amounts of currency anonymously, I think, is what the government has a problem with. Because green dot checks id, etc... it's not a problem. If E-gold asked for your ID, your SSN and reported things as a bank would from the beginning, I don't think e-gold would have had an insurmountable problem, either. By "private" I meant "allows anonymous users" not "owned by someone other than the government." which is very unclear. I've been up all night working and my grammar is degraded.
    - ynniv 16y ago
      Your comment used to say "alternative" where it now says "private electronic". This drastically changes the meaning, and makes my comment irrelevant.
patio11 16y ago
It isn't specifically the Patriot Act, it is a Treasury Regulation called "Know Your Customer (KYC)" aimed at preventing money laundering. We've had similar requirements for essentially forever, but they became more explicit recently. The specific mechanism is up to the individual bank / financial services firm.

rufugee 16y ago

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?

chopsueyar 16y ago
Giants are not nimble.
goatforce5 16y ago
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.

jakarta 16y ago

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)

sanj 16y ago

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.