Dan Henry, CEO of Green Dot
Source: Green Dot
Still, the company's shares have ample room to run as it launches a digital bank account for low and moderate income Americans and inks more partnership deals, according to CEO Dan Henry, hired in March to lead a turnaround of the firm.
Green Dot started two decades ago as a pioneer in prepaid debit cards, which allowed people without bank accounts or credit history to use plastic. After acquiring a small FDIC-backed bank, Green Dot became the de facto partner for tech giants including Apple, Uber and Amazon, providing the regulated banking rails and deposit accounts for products including Apple Cash.
Now, under Henry and his new leadership team, Green Dot is making a play to become the main bank account for the 100 million Americans underserved by traditional banks, a space where start-ups including Chime have made headway. Green Dot's market capitalization of about $3 billion is dwarfed by most of his rivals, including the $14.5 billion private valuation of Chime.
"We are the after-Christmas sale of a lifetime" compared to competitors, Henry said in a Zoom interview. "The assets that Green Dot has are unparalleled with any fintech in the country. They are very much undervalued, and I think our company is very much underestimated."
In some ways, Green Dot's strategy mirrors that of another financial firm at a crossroads: Goldman Sachs. Both firms are seeking to take advantage of the fact that they own banks, but don't maintain expensive branch networks. They are both developing digital banking products for a direct-to-consumer business, as well as partnerships to become the financial plumbing for new offerings from well-known brands, a move known as banking-as-a-service.
"We need to digitize banking and make it more efficient and more Apple-esque in terms of the user experience," Henry said. "That's going to add additional value for us in the near term. And then, the moonshot opportunities with our partners now is super, super exciting for us."
Before Henry's arrival, Green Dot struggled as users of the company's prepaid cards began to migrate to newer digital solutions including Square's Cash App and PayPal's Venmo. In 2019, the company was twice forced to slash guidance and its stock collapsed from a high of $82.06 to under $25.
That ultimately led to the arrival of activist investor Starboard Value, a New York-based hedge fund, and the installation of Henry, who had co-founded a European payments firm and spent six years as CEO of a Green Dot rival called NetSpend. Henry said that he had a good relationship with Starboard.
"The share price has doubled since I've been here," he said. "I think they'd probably like to see at least another doubling."
Like its flashier rivals, Green Dot has benefited from the impact of the coronavirus pandemic, including the government stimulus checks and unemployment benefits that boosted customer accounts and the overall accelerated adoption of digital payments.
But to keep the turnaround on track, Henry will have to continue to improve Green Dot's financial performance, expand on the firm's partnerships and successfully launch the new digital bank, called GO2bank.
Henry figures that if Green Dot can convince users to sign up for direct deposit, the company can earn $10 from each customer per month. The service, which launches Wednesday, will offer many of the features made popular by other fintech accounts, including faster access to paychecks, higher interest and up to 7% cash back on certain purchases.
"As long as we don't create a corporate headquarters with a dining room and marble floors and all that crap, we can just keep our fixed costs fixed, and every one of those customers that comes in brings us $10 a month that drops to the bottom line," Henry said. "We'll grow our profits and we don't have to figure out ways to nickel and dime them."