The Millennial Wind Behind This Banking-as-a-Service Twofer

2 | By Michael A. Robinson

If you know many Millennials, you probably know an important fact about this group of young people and their banking habits.

Folks between the ages of 18 and 35, including Millennials, are shunning traditional banks and the credit cards that go along with them… which presents us with a great opportunity today.

Let me explain.

If you’re anything like me, you probably have more plastic in your wallet than you can actually use.

I have two credit and two debit cards, and just as many bank accounts. Several times a year, I receive an offer for pre-approved credit cards, too.

Of course, I’m a Baby Boomer, and by definition that makes me “old school.” In fact, the American Banker’s Association estimates that 70% of adult Americans have at least one credit card. It goes without saying that those same folks have at least an account with a physical financial institution.

But that was then, this is now…

Today, the most desirable consumer group in the nation is also becoming a potential gold mine for a savvy fintech firm that understands the world of digital payments.

These internet-native Americans are the largest population cohort in the U.S., and they prefer to make their payments digitally – and the convenience that comes with doing so.

That’s why today’s profit opportunity comes in the form of a company poised to crush the market by catering to these digitally minded Millennials…

Check it out…

Fintech Is How Big?

When I say fintech is a huge market, I’m in no way exaggerating that claim. In fact, our nation’s banks handle a stunning $17.2 trillion in assets. Of course, that covers savings, checking, credit/debit cards, IRAs and more.

If we break down the numbers further, we get a “conservative estimate” of what’s up for grabs with credit cards. Data from the Federal Deposit Insurance Corp. (FDIC) shows that U.S. consumers paid $104 billion in credit card interest and fees in 2018.

Based on banking data and consumer surveys, I’d venture that older Americans paid the vast majority of that money. And remember, the figure doesn’t include how much they spent for their checking or savings accounts – the “old school” approach to managing your money I mentioned up top.

Millennials are vastly different. A study by First Data showed that 94% of consumers under the age of 35 actively use online banking. Plus, 27% would consider a branchless digital bank.

Meantime, more than half of millennials are transferring money digitally, and 43% list on-line banking as one of the most important aspects of their banking experience.

A chance like this is worth thousands (but it’s yours for $1)

Now, the reason Millennials – and younger – behave in this way does make sense. Many folks in the younger generation experienced first hand what happened during the Great Recession, and grew simply allergic to accumulating debt.

I know my wife and I raised our Generation Z daughters, ages 19 and 22, to avoid credit card debt.

We also sent them to a private high school to enhance their chances of avoiding student-loan debt by getting scholarships, which both of them received.

They’ve both talked about getting prepaid debit cards so they don’t overspend or end up owing money on clothes or vacations.  And they exchange money fairly regularly using mobile apps.

Yes, they have bank accounts, but have never written a check. According the FDIC, they are part of the 20% of American households that are “underbanked,” meaning they have bank accounts but rarely use them.

A Simple, Profitable Plan

Now you know why Steve Streit’s intuitive leap is worth so much money. Just as Millennials were coming of age in 1999, he founded the Green Dot Corp. (NYSE:GDOT).

Streit launched with a simple plan to provide prepaid debit cards so teenagers could shop online. Within a few years, he realized that pivoting his firm toward the unbanked and underbanked part of our population would add a new growth platform.

Focusing on both young people, and the more than 6 million U.S. residents without conventional bank accounts, has proved to be a powerful one-two punch.

Today, Green Dot has more than $1 billion in yearly revenue, and it’s growing at a double-digit pace, thanks to an unusual change in Streit’s business plan.

As Green Dot courts young people, it can rely on an impressive fintech platform. The firm boasts the country’s leading cloud-based consumer banking tech, what Striet calls his “Banking-as-a-Service Platform” (BaaS).

Why the government may not want you to know about this $11.1B money pool

This system gives other firms the ability to add banking services to their own apps and products without becoming a bank. It also serves a wide range of bank and payment processes, and includes an integrated brand and huge retail network.

With this aggressive approach, it’s no wonder Green Dot is already the nation’s largest provider of reloadable, prepaid debit cards and cash reload processing services. And it’s used that heft to rack up some pretty impressive numbers.

For example, through the firm’s GoBank mobile checking account, Green Dot is the largest processor of tax refund disbursements in the country.

Green Dot launched GoBank in January 2013, designing it to be a mobile debit account.

It also included a checking function, and other features such as access to a 40,000 fee-free ATM network, bill pay, person-to-person mobile payments, and mobile check deposits.

None of this would have been possible without a helping hand from WalMart Inc. (NYSE:WMT). See, Green Dot debuted its MoneyCard program with Walmart in 2007, and the giant retailer carries Green Dot’s
GoBank starter kits to help clients get these accounts off the ground.

Through its presence at WalMart and elsewhere, Green Dot’s products and services are now available to consumers through a distribution network of more than 100,000 U.S. locations – not to mention on-line.

WalMart isn’t the firm’s only blue chip partner here. Green Dot also has deals in place with Apple Inc. (Nasdaq:AAPL), Uber, Rite-Aid Corp. (NYSE:RAD), PayPal Holdings Inc. (Nasdaq:PYPL), and many others who distribute Green Dot’s cards and services through their own distribution platforms.

This happened right before the 2008 crash (and it’s back)

A Different Marketing Approach

One of the key charms of this business is its shoestring marketing budget in a field noted for heavy advertising. Word of mouth, organic online search, broad-based retail display space, and the firm’s BaaS partnerships primarily drive new client growth, which has been running hot.

These days, Green Dot has been growing at a far faster pace than Wall Street realizes. In fact, the firm’s earnings results have exceeded the consensus forecast for 12 straight quarters – and in 19 of the past 21 quarters.

In its most recent quarter, the firm earned $0.59 a share, up 74% from a year earlier, and well ahead of the $0.43 consensus estimate. The earnings spike is the result of a nearly three-percentage point jump in profit margins.

America could be defenseless against this Chinese sneak attack

I want to make one thing very clear. Strictly speaking, this is not a high-tech pure play. Yes, the company uses sophisticated cloud-based tech to lure and retain customers, and has great backend technology that adds to profit margins.

But I actually think the “twofer” nature of this play is quite appealing in today’s choppy market.

That’s because Green Dot gives us a reach in both tech and consumer finance at a time when rising interest rates will help finance firms make more money.

I believe we can count on Green Dot to continue its impressive run of earnings gains for many years to come.

And that means it’s the kind of hybrid tech play you can plan to hold for the long haul, no matter what the market throws our way.

With markets as volatile as they are, that’s the sort of play you should be seeking out these days.

Of course, there’s another profitable way to play the recent market volatility – and it’s got nothing to do with the rise and fall of a single stock.

This algorithm is comprised of a multi-layered, multi-functional framework of calculations that combines fractal mechanics, quantum physics, digital signal-processing match, and neural networking.

Bottom line: it can predict the future of the stock market seven days in advance – with 93% accuracy.

Read more about it here.

And I’ll see you back here soon.

2 Responses to The Millennial Wind Behind This Banking-as-a-Service Twofer

  1. Joe Gordon says:

    Gen Z began in 2001 at the earliest, and according to the journalist who coined the term, Millennial, in lieu of Gen Y, the age span is from 1982 to 2004. Gen Z is at best 18 years old and not in the work force. Most have not even had a part time job and look at work for pay as demeaning.

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