Architects and historians of the prepaid card industry may look back at Green Dot Corp.'s $15.7 million acquisition of Bonneville Bancorp as a watershed event. Not only is it the first time a prepaid card company will function as its own issuing bank and thus issue its own prepaid cards, but it may also signal a trend of companies broadening business models to reach more customers with more diverse products.
Madeline Aufseeser, Senior Analyst at Aite Group LLC, called the purchase "prudent." It vertically integrates Green Dot's processes, she said. It also allows the company to avoid the consequences of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The debit card interchange cap imposed by the Durbin Amendment does not apply to banks such as Bonneville with assets under $10 billion.
"So what it does essentially is it secures Green Dot's interchange rates for prepaid cards," Aufseeser said. "And it solidifies them being not under the Durbin Amendment."
Ed Lawrence, Director at Auriemma Consulting Group, said the purchase lessens Green Dot's risk. Financial or regulatory trouble at one of Green Dot's issuing banks would likely have negative repercussions for Green Dot. "If that bank does something wrong, then Green Dot has its reputational risk involved," he said. "This way they control it totally. And they certainly do have the ability to mitigate some risk."
But Lawrence also believes the move is evidence that being a "one-trick pony" alternative financial service provider is on the decline. "Becoming a bank means you move more into the mainstream," he said. "And I think that's Green Dot's approach. …It's just like any business. If you look at Kraft Foods, they began making cheese. And if you look at them today, they're into a thousand different products."
Green Dot may enter the credit card market, according to Lawrence. "That they've got a banking license shows that they can go out and maybe raise some capital and issue credit cards," he said.
Lawrence noted the purchase may not spur other prepaid card businesses to become issuing banks, as it's a complicated and expensive process. The more likely scenario is that banks will acquire prepaid card businesses.
"I think banks should be eyeing [the prepaid card industry]," Lawrence said. "If you're going to get into it, it's a difficult business for a bank to start thinking of marketing to underbanked consumers when they haven't done that before. So getting your feet wet and buying one of these companies … would be a good step for a bank to do. Not only to get their feet wet but also to jump into the market with a proven portfolio of accounts – and then begin to expand it."
Green Dot's acquisition is proof the company recognized it needed to expand its services to stay competitive, Lawrence noted. "Either that, or sooner or later they would have been purchased by someone else," he said. 
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