American society is becoming less and less cash-oriented, and Green Dot's (NYSE:GDOT) products and services are focused on the segment of the population that tends to use cash for more purchases than the average American.
In this clip, Industry Focus: Financials host Michael Douglass and Motley Fool contributor Matt Frankel discuss why Green Dot could be a smart way to play the "war on cash."
A full transcript follows the video.
This video was recorded on May 16, 2018.
Michael Douglass: The first one is Green Dot Corporation, ticker symbol GDOT.
Matt Frankel: Yeah. On that note, I'm an American Express shareholder myself, and they're not the best way, we kind of feel, because credit cards are expensive. The trend in financial technology, as we discussed in an episode a few weeks ago, is toward no fees. So, we're looking at companies that offer low-fee payment solutions, Green Dot being the first one.
They're a relatively small company. The market cap is just under $4 billion right now. And, in addition to a few other things, which we'll get to in a second, they're the leader in prepaid cards, where people have their paycheck directly loaded onto a prepaid card. You see all the prepaid Visa cards at the Walmart checkout, those are usually Green Dot products. Green Dot focuses on what are called the unbanked and underbanked segments of the population, meaning people who don't necessarily have a checking account. If you have, say, credit issues, you've defaulted on loans before, you've had charge-offs on checking accounts before, it can be really tough to get a bank account. These are the people who Green Dot focuses on. And a lot of the people who still use cash for everyday purchases are slowly transitioning to Green Dot product because it's getting less and less convenient to use cash. That's the best way I could sum up Green Dot: It's a play on the inconvenience of cash over time.
Douglass: Yes. And, as you pointed out, it does a lot of things with a lot of different cards. It's interesting. I was not familiar with Green Dot until Matt pitched it to me a couple of days ago. And when I looked at the company, a couple of things really jumped out. The first one is that they have just really diversified revenue streams. If you look at the most recent quarter, out of roughly $315 million in revenue, about $130 million came from card revenues and other fees, $100 million from processing and settlement services, and then about $85 million from interchange revenues. So, what you see there is that they're playing in related areas, but they don't have all of their revenue really tied to one place, which is a really good thing to see.
The other thing is, you're seeing pretty impressive growth. Revenue last quarter grew by 16% on the organic side. Now, they actually had an acquisition which juiced revenue up further, but net of that, revenue grew by 16%. So, that's a really good sign that they've made a series of products that are really attractive to a lot of people.
Frankel: Green Dot, in addition to being an issuer of its own products, sees itself as more of a technology platform, whereas other companies can go and use their technology to offer financial services that suit them. Just a couple of examples: Walmart MoneyCard is a big, big partner of Green Dot. More recently, Uber has started issuing the Uber Debit Card through Green Dot's platform. Most recently, in December, Apple announced that it's using Green Dot's technology for its Apple Pay Cash platform. Which, you can't really get a better partnership than that, as far as peer-to-peer payments.
Douglass: Yes. It's interesting, because, the way Green Dot puts this is, it's banking as a service, or BAAS. You've probably heard of technology as a service, software as a service, et cetera. They're trying to comp themselves, I think, to a lot of these other companies. Essentially, what that means is, it's this mobile platform that can work in a lot of different areas. Now, whether or not you would really comp that to a tech stock is something that I think there could be a very healthy debate about. But, I think, what is very clear is, this is a company that's serving a historically underserved niche in the market and has really put together some really impressive growth with that.
Frankel: Yeah. The other two companies we're about to talk about focus on markets where people could use credit cards and things right now, it's just, they want to make it more convenient and less costly. Green Dot is focusing on people who don't have many other options. It's not too much of a big deal right now to carry cash. It's getting inconvenient in certain places. But, over the next few decades, it's going to start getting very inconvenient to use cash for certain things. And that's really why I like Green Dot as a long-term way to play the war on cash.
Matthew Frankel owns shares of American Express and Apple. Michael Douglass owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Visa and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.