You might think of Green Dot Corp. of Monrovia the same way you regard pawnshops and payroll check-cashing stores.
They provide some basic financial services to lower-income folks. That’s fine, you might think, but you’ll never be a customer.
However, Green Dot’s products, along with other prepaid debit cards, lately have broken free of the check-cashing milieu and moved upmarket and into the mainstream.
Indeed, they’ve caught on so quickly that a number of prepaid-card startups now dot the L.A. area. This area has become a kind of Wall Street of prepaid cards, as our banking and finance reporter, Richard Clough, wrote in the special report headlined “Card Punchers” in the Sept. 24 issue.
Why here? One reason is that Los Angeles gave birth to the concept. Green Dot was the first and remains the largest with as much as one-third of the market. Los Angeles has many so-called unbanked people – the traditional customers of prepaid cards.
Also, this area has lots of celebrities who can endorse prepaid cards as they become more acceptable and desirable among the middle class.
In fact, Clough reported, the Kardashian sisters were criticized for endorsing a since-killed prepaid card with extremely high fees. There might be no better signal that a product’s moved into the mainstream than when it’s associated with a Kardashian miniscandal.
Although I’ve never had a prepaid debit card, I must admit that I’m one of those middle-class people seriously considering getting one. Maybe several.
One reason: A prepaid card appears to be a great way to give your children an allowance. You buy a card, load on the usual amount of money at the usual time and your child can use it like a credit card to buy whatever they want. But unlike a credit card, they can’t overspend because once they use up the money you loaded on, the card won’t work.
What’s more, your kid can use the card to buy stuff online. That means you don’t have to hand them your credit card each time one wants to make a purchase or a download. They’re probably buying something you’d rather not know about anyway.
For that matter, prepaid cards would seem to make a great present. They’re like a gift card to anywhere. And I wouldn’t mind using one instead of a credit card. I mean, don’t you wonder what the waiter is doing with your credit card in the back room? Now that I think about it, this may explain those medical marijuana charges that keep showing up on my statement.
Oh, sure, prepaid cards can be stolen and misused, too. But at least your loss is limited to the amount of money you have loaded onto them.
But alas, prepaid cards have moved so far into the mainstream that big financial service houses are moving in. As you can read in the article that begins on page 1 of this issue, American Express has teamed up with Wal-Mart to begin marketing a prepaid card called Bluebird. Think about what that says. American Express – a name that equals upscale – going into prepaid cards.
And you don’t even need to think about what that means for Green Dot. Since Green Dot depends heavily on its relationship with Wal-Mart – and another one with CVS that AmEx also is horning in on – this new card is a real threat. As reporter Alfred Lee pointed out, Green Dot’s stock plunged 20 percent last week, but it also has fallen from about $30 to $10 so far this year, lopping off $700 million of its market capitalization.
So Los Angeles can claim to be the birth place of the prepaid debit card, and the city where the concept proved itself, grew up and went mainstream. But as with most things that mature, it may be an industry that moves out.
Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].
