Mobile wallets making waves

Green Dot Corp. has built a successful business in the prepaid debit-card market.

 

Walk into most drugstores, markets or big-box retailers in Southern Nevada and located next to the checkout counter are Green Dot reloadable prepaid MasterCard and Visa cards. The prepaid cards are like debit cards that consumers can reload with their own money.

 

Unlike traditional debit cards, prepaid cards are not attached to a bank account.

 

Now, the company wants to join Google Inc. and PayPal in the emerging business of mobile wallets, which allows consumers to pay for purchases with mobile devices, including iPhones and smartphones that run the Android operating system.

 

Google introduced its mobile wallet in September; PayPal's version was released this month. Green Dot announced its plans for a mobile wallet with its recent acquisition of Loopt Inc. for $43.4 million.

 

The company said Loopt was an attractive acquisition since it was an early investor of geolocation-based mobile communication and holds the patent for geolocation mobile messaging.

 

"This is the process for sending a commercial message to a mobile device based on the location of that mobile device," Green Dot Chief Executive Officer Steve Streit said in a conference call with analysts.

 

It's also the technology that allows consumers to turn their smartphone into a credit card.

 

"It's Green Dot's thesis, that starting now and increasing rapidly over time, the business of banking and payments will be conducted in the palm of your hand," Streit said. "In fact, our view is that for many consumers, hard drive-based desktop or laptop computer itself is simply a bridge to cloud-based computing, much in the same way that a landline telephone for many consumers was simply a bridge to a wireless cellphone."

 

Streit believes mobile phones will change the way people manage money, shop and pay for goods.

 

"When Loopt's assets are layered into Green Dot's platform, we believe that a significant opportunity emerges for Green Dot to become a large-scale player in mobile technology solutions at the retail point of sale," he said.

 

Analysts believe the success of a mobile payments system will depend more on which piece of software will be used on the most devices.

 

Dave Kaminsky, an analyst in Mercator Advisory Group's emerging technology service, says a fully functional system will require the integration of a number of different factors, including point-of-sale terminals, processing and the devices themselves.

 

"Over the past few years, the emergence of mobile wallets has been among the most anticipated developments in the payments industry," Kaminsky said. "However, the development of mobile payments requires input from a large number of organizations across both the payments and mobile industries."

 

The Loopt acquisition represents an expansion of Green Dot's core business, which has been selling reloadable prepaid debit cards since 1999 primarily to low-income and unbanked consumers.

 

That business earned the company $52 million on $467 million in revenue in 2011. Green Dot reported first-quarter net income of $21.2 million on $145.5 million in revenue.

 

Streit founded Green Dot, which was first called Next Estate Communications, as a way to help people make purchases online. The prepaid debit card has become popular, particularly among college students and people without bank accounts.

 

Green Dot has signed partnership agreements with major retailers, including Rite-Aid, 7-Eleven and CVS, and its cards can be purchased at 60,000 stores nationwide.

 

Among the fees charged is a $4.95 cost to activate a card purchase at a retail store, while no activation fee is charged when the card is purchased online.

 

<b>MOBILE COMPETITION</b>

 

The market for mobile wallets is huge and attracting some well-known brands.

 

PayPal, which is known for its online payment system, is rolling out its mobile payment system that allows users to make use of the online payment system no matter where they are making purchases.

 

In a detailed blog about its mobile wallet, PayPal said that consumers will be able to use it at brick-and-mortar stores rather than just online, and a five- to seven-day grace period will allow for the resolution of buyer's remorse on just about any product.

 

The wallet will allow consumers to switch from one funding source to another, as well as decide to pay over time in installments.

 

But the blog post notes that PayPal's wallet won't be just mobile, it'll be digital.

 

&quot;Because PayPal's wallet is digital -- not just mobile, it lets consumers do things with their money that have never been possible before,&quot; Sam Shrauger, vice president of global product and experience for PayPal, said in his blog post. &quot;And there's no finite set of features, because the digital wallet can evolve with the pace of innovation, allowing us to incorporate new functionality as consumer demands shift.&quot;

 

The company began rolling out the wallet feature this month.

 

&quot;PayPal is not about replacing a card swipe with a phone tap at point of sale,&quot; Shrauger said. &quot;We are reimagining money to free it in its digital form so that it can work better for everyone.&quot;

 

In September, Google introduced the Google Wallet, a payment system that features a downloadable application that can be swiped at 150,000 retail locations. Google's app works only on phones using its Android operating system.

 

The Google Wallet is already accepted at Macy's, Walgreens, McDonald's and other brick-and-mortar stores that have special terminals installed.

 

U.S. Bank Chief Information Officer Dominic Venturo estimated 400,000 retail locations nationwide. But he said it was &quot;not yet on a wide- enough scale,&quot; because the market demand isn't enough for retailers to install the terminals.

 

Other companies looking to enter the market are MasterCard Inc. and Visa Inc., as well as big-box retailers Target Corp. and Wal-Mart Stores Inc.

 

Contact reporter Chris Sieroty at <a href="mailto:csieroty@reviewjournal.com">csieroty@reviewjournal.com</a> or 702-477-3893.

 

JPMorgan Chase joins prepaid market

 

American Express advertises its reloadable prepaid card as an alternative to a debit card, while U.S. Bank markets their prepaid product as a convenient cash card.

 

Now JPMorgan Chase &amp; Co. wants its share of the growing prepaid card business.

 

The bank recently launched its own prepaid card called Chase Liquid. The reloadable prepaid Visa card has been rolled out in 200 branches, and it will go nationwide this summer.

 

Prepaid cards are like debit cards that consumers can reload with their own money. Unlike a traditional debit card, prepaid cards are not attached to a bank account.

 

While their fees are generally higher than other financial products, Greg McBride, senior financial analyst at <a href="http://Bankrate.com">Bankrate.com</a>, said prepaid cards allow banks to reach new customers, who traditionally have had few options.

 

&quot;All the prepaid cards have various amounts and a number of different fees,&quot; McBride said. &quot;For most consumers, a low cost or free checking account is still a better option.

 

The Chase Liquid card charges a flat monthly fee of &#036;4.95. Consumers can reload their cards at bank branches or ATMs for free, and ATM withdrawals within the bank's network are also free.

 

The &#036;4.95 fee is pretty average for prepaid cards, according to a recent survey.

 

A <a href="http://Bankrate.com">Bankrate.com</a> study of 18 prepaid cards found that two-thirds have monthly fees ranging from &#036;2.50 to &#036;.9.95. And many cards come with fees for activation, transactions, ATM use, bill payment, inactivity, customer service, paper statements and declined transactions.

 

Seven of the 18, or 39 percent, of the cards have no activation fee under any circumstances. Of the 11 cards with activation fees, the range is &#036;3 to &#036;14.95. Two of the cards do not charge activation fees if issued online.

 

None of the issuers charge a reload fee, but fees to reload at retailers are common.

 

&quot;Consumers with a tendency to overdraw their checking accounts or those unable to obtain checking accounts may find a prepaid card to be a suitable alternative, but it's important to shop around to find the card that will produce the lowest fees for the cardholder's particular financial tendencies,&quot; McBride said.

 

While JPMorgan Chase is the latest big bank to enter the prepaid card market, American Express began issuing a prepaid card last year, and its only fee is a &#036;2 charge for ATM withdrawals.

 

U.S. Bank, Capital One and Wells Fargo also offer prepaid cards.

 

Why are traditional financial institutions in the prepaid business? The answer is simple: &#036;82 billion. That's the amount expected to be loaded onto these cards in 2012, up 44 percent from &#036;57 billion in 2011.

 

Also, prepaid cards aren't subject to the Durbin amendment, which capped the fees banks are able to charge retailers every time customers swipe their debit cards to make purchases. The Federal Reserve capped the interchange fee at 24 cents on the average debit purchase.

 

Banks see reloadable prepaid cards as a new revenue stream.