Green Dot launches lending marketplace (GDOT)

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US-based prepaid card firm Green Dot announced the debut of Green Dot Money, an online lending marketplace targeted at low-to-middle-income consumers.

The marketplace will match Green Dot customers with third-party lenders that specialize in issuing loans to these groups — Green Dot won’t be funding loans from its own balance sheet or assuming responsibility related to repayment. Loans range from $100 to $10,000, and customers will be able to tie the product to their existing prepaid or checking account.

The firm believes the platform will help it capitalize on changes in the alternative lending space.

• Lending options for this segment are limited or problematic. Low-to-middle-income consumers tend to have limited borrowing options, which often pushes them towards loans with high interest rates and challenging repayment schedules. Green Dot hopes that Green Dot Money can help match these consumers with loans that have more feasible terms, particularly as payday lending sees increased scrutiny and alternative lending is on the rise.
• Green Dot seems to have built a win-win approach with Green Dot Money. The firm isn’t at risk for considerable loss, since it isn’t underwriting the loans or holding the loan notes on its balance sheet. But whenever a loan is matched, the lender will pay Green Dot a “success fee” equivalent to roughly 10% of the loan’s value, giving them a potential high-margin revenue stream.

Although Green Dot isn’t sure exactly how the program will perform, it believes two factors could give it a running start in the space.

• Acquisition channels: In its Q1 2016 earnings call, Green Dot noted that it sees 10 million website visits and 13 million calls per month, giving it an immediate and engaged audience to recruit for Green Dot Money, which could minimize its acquisition costs.
• Customer base: Green Dot’s flagship products are prepaid payment cards, which tend to attract low-to-middle-income consumers — the same group that Green Dot Money is aimed at. That means the firm can funnel its prepaid customers towards its marketplace, allowing the company to extract more value out of its customers through the offering of more financial products.

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