Green Dot Gets Serious about Credit (Feb. 4, 2015)
Green Dot is considering expanding the financial services it provides to include what Chairman and CEO Steve Streit describes as “modern credit.” In a conference call with investors last week, Streit provided clues as to what Green Dot credit products might look like, subject to regulatory approval.
Streit discussed the possibility of offering secured and unsecured credit products. On the secured credit side, he believes Green Dot’s reload network could be an asset in overcoming what he called a key barrier to the widespread adoption of secured credit—consumers’ inability to deposit cash. “It’s not going to have late fees or overdraft fees … over-limit fees and all the things that are typical,” he said. “So it’d be a very low-fee, very consumer-friendly, fairly priced product that we think fits our target demographic really well.”
On the unsecured side, Streit discussed using Green Dot consumer data as a means to underwrite customers. “The difference is that in America today, FICO scores are not what they used to be. And in our demographics, they were never good to begin with . . . We want to change that with a highly pro-consumer, well-priced product. But to do that, you need to be able to underwrite the consumer because otherwise, you could injure the bank. So by using our data, by looking at the transactional behavior of customers of our bank—and we have a lot of customers as you know—we think we have a good opportunity for a small portfolio of unsecured credit.”
In the past, Streit has been critical of credit offerings tied to prepaid cards, particularly overdraft. But he told Paybefore last fall that the company’s rich data on as many as 25 million current and past Green Dot customers is something valuable you can’t find at a traditional credit bureau. “We’re a national financial services platform for which prepaid is only the beginning,” he said.
Efforts to use prepaid transactional data for credit underwriting are not new but largely have stalled, and previous attempts to offer credit to prepaid customers have been marred by regulatory scrutiny. The CFPB did not heed calls from consumer advocates to ban credit from prepaid products; however, some experts suggest the agency’s proposed rules for prepaid may make it impractical for prepaid providers to offer credit. But perhaps having a clear framework within which to build credit offerings is what Green Dot is banking on.
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