Green Dot‘s IPO plans revealed that they are becoming a bank holding company. This is completely fascinating to me – and gives, I think, a peek at what may come for retail banking in the future.
At Glenbrook we’ve been talking, thinking, and writing for some time about two related issues. One is the problems retail banks have with their economic model: in a nutshell, that consumers expect “free checking,” and that too much of the bank’s revenue comes from either customer-invisible (interchange, NII) or customer-antagonistic (overdraft fee) sources. The other is the growth of the open-loop prepaid card industry, and the potential for these “banks on a card” to serve not only the unbanked, but the unhappily banked as well.
The first logical intersection of these two issues is to predict continued growth for prepaid cards as they exist today – issued by non-bank companies with a shadow “network bank” as a supplier. But Green Dot’s plans go in a different, and potentially much more interesting, direction. Simply put, a prepaid, open-loop card from “Green Dot Bank” could be not just an alternative to a bank account, but a new type of bank account – one with a completely different economic model from current retail banks, but with some of the positive attributes (trust, security, etc.) that consumers associate with banks.
What appeals to me is the potential to get away from this trap of consumer-invisible or consumer-antagonistic revenue sources. These cards are, after all, paid for by consumers – at least in their current incarnation. The skeptic in me, of course, says that over time, these new prepaid cards will simply become “normal” retail bank accounts- with the bank living off of overdraft fees, interchange and NII. We’ll have to wait and see!
As a founding partner of Glenbrook, Carol has offered clients over 25 years of experience in product, marketing, and strategy development with leading financial services providers in both wholesale and retail financial services. She is a co-author of the book “Payments Systems in the U.S.” Before founding Glenbrook Partners, Carol was a managing director of the Global Institutional Services division of Deutsche Bank, in charge of marketing, client online services, and Internet development.
Carol began her career as a corporate lending officer for large multinationals at both Bank of America and Citibank. During her time at Visa International, Carol founded and managed Visa’s European product-development office, where she led a series of electronic-commerce and chip-card projects designed to bring European banks online. Carol formally retired from Glenbrook in June 2020, but remains important to the firm as both a friend and advisor.