Q3 2020 Green Dot Corp Earnings Call
Our next across our consumer retail and B to B offerings.
We remain focused on unlocking new opportunities and capitalizing on the accelerated shift from cash to digital banking and payments, which was further eliminated by the pandemic and other dynamics taking place in the marketplace.
As we and we are already seeing benefits from our work from anywhere initiative from both a cost savings and talent recruitment perspective.
In a few minutes I'll pass it over to just to walk you through the details of our financial results I'd like to start by sharing a few highlights and my perspective on what contributed to a solid third quarter.
I'm going to focus on three key areas of progress the stem back to the objectives I laid out earlier this year.
These will include improving our financial performance and execution refocusing in enhancing our bass strategy and launching our new and lasting Challenger Bank initiative.
Well, Jeff will cover the financial performance in detail, let me provide you with my take on the results for the quarter.
Non-GAAP revenue increased 22% compared with the third quarter of the prior year.
This higher revenue was driven by a combination of new and existing customers using green dot products to electronically receive their income elevated deposit balances from stimulus funds received in Q2 growth in our bass partner fees and accelerated demand for digital banking and payments products.
We also started to see recovery in areas of our business there were negatively impacted by COVID-19.
Our total operating expenses for the third quarter of 2020 increased by $42 million compared to the third quarter of the prior year and our margins expanded by approximately 100 basis points.
A big component of the increase in operating expenses was related to growth of our bass business.
We also had lower marketing expenses in the quarter. If you recall green Dot spent a majority of its full 2019 marketing budget in the second half of 2019.
Finally, we had a few headwinds to margins, especially in increased revenue share with one of our key retail partners higher transaction losses on our purchase volume and the timing related expenses associated with incentive compensation for our employees.
Moving on to our bass business.
As we previously announced we officially kicked off new relationships with Intuit and cabbage in third quarter, which further positions green dot to serve and empower Americas 30 million plus small businesses and entrepreneurs.
Leveraging green dots capabilities into it announced their plans to launch a quick books cash account and cabbage announced plans for cabbage checking.
We're also very excited about cabbages accelerated potential now that they are part of.
American Express.
Through these products small business owners will now have access to more seamless safe and value driven banking and cash management for their businesses.
We are incredibly proud to be a part of this movement and look forward to deepening our partnerships with intuit and cabbage and doing more for small businesses in the future.
We believe the opportunity for green Dot to offer it services to the vast SMB segment is in that and we look forward to providing you with more updates regarding this opportunity.
On that note you may have seen a fan asked last week about a new strategic investment and partnership with gig, which which for those who may not be familiar as a very impressive fast growing startup focus on creating a better financial ecosystem for the rapidly expanding gig economy.
When I met Gateway, just founder Craig Louis earlier this year. It quickly became clear that we have similar goals and visions for the industry and for our customers and that we could do a lot together grew.
Green Dot led gig wages series, a funding round and we will serve as their infrastructure bank partner, enabling gig wage to launch a number of new financial solutions designed for 10 99 workers and their employers.
As a strategic investor and bass partner Green Dot has an exciting opportunity to grow this vertical and capitalize on the growing demand for better banking and payment solutions for the gig economy.
Also we have a few new partners, we will be announcing soon brands.
Brands that everyone will know unrecognized.
One thing I want to reiterate is our commitment to partnering with select high impact and high potential companies, meaning they are highly respected brands with very impressive reach or their startups with tremendous potential.
Which we will differentiate ourselves as a vast provider by acting not just as a bank sponsorship, but also a true partner providing end to end support spanning technology program management call Center support fraud, and our reload network and more which we consider a huge differentiator.
For Green Dot.
Last but certainly not least one of the most important and exciting areas of focus and progress has been unlocking our potential as a powerful challenger bank.
Earlier this year when the goals I set for the company was to introduce a new direct to consumer bank and that vision will come to fruition very soon.
Last week, we officially launched our wait list for go to bank, which.
Which is an entirely new and simplify digital banking experience that will offer meaningful value in features designed to say people time and money and manage and move money effortlessly.
We chose go to bank as our new brand by doing some pretty extensive research and it because we want this product to be the go to destination for modern banking and money movement for everyone wherever they go.
Go to will be a solution designed primarily for low to moderate income consumers, who are looking for and can benefit from a better way to bank and transact.
We plan to expand the target market as we enhance the product features and services over time.
As one of the only challenger banks to actually be a bank.
Go to bank will position green dot to compete aggressively and profitably when.
When we launch early next year go to will offer a compelling value proposition to a wide range of customers, including the security and protection. It comes with a member FDIC Bank and intuitive mobile App and experience, where you can quickly set up and manager account no monthly fees. When you use direct deposit free in network ATM.
It's 10 times National average 80, why and other valuable features and rewards.
And our plan is to expand on those features quickly.
This new brand and products that represent a meaningful and long term commitment and strategy for green Dot.
So you can expect to see a lot more of this in 2021 and beyond.
While we intend to spend to develop the go to bank brand and acquire customers. Our marketing dollars will be based on a data driven marketing strategy driven by thoughtful and rigorous return on investment requirements and expectations for lifetime value.
Green Dot has a proud 20 year history of serving over 33 million customers through our retail direct to consumer products and many more through our banking partners like Walmart Apple Luber and other well known innovative brands we.
We know how to build products that make money movement and access more seamless intuitive and safe for everyone.
We also know there is a significant segment of our population that continues to be under served by the financial services industry and we have the opportunity to change that would go to bank anchor.
I encourage you to visit go to bank dotcom and join our waitlist.
As you may be able to tell we have been incredibly busy laying the foundation to deliver value added products and services to our customers directly as well as through our valuable bass partners at the same time, we are delivering on our commitment to rightsize the cost structure and establish sustainable operating leverage.
Which will create value to you our shareholders.
I would like to thank our valuable employees that are working tirelessly through these challenging times.
And with that I'll pass it over to adjust to walk through our numbers.
Thanks, Dan Good afternoon, everyone overall.
Overall Green Dot had strong financial results in the quarter and significantly exceeded our internal expectations from three months ago. The momentum we saw in Q2 from stimulus funds unemployment benefits and new users on the platform carried into Q3, we're pleased that the scale of our platform and our market reach puts us in a position today.
Benefit from the accelerated adoption of digital payments.
Our Q3 2020, non-GAAP revenue grew 22% to $279 million and we delivered adjusted EBITDA of $34 million and non-GAAP EPS of 25 cents.
Curious a few significant tailwinds as well as headwinds in the quarter that will walk you through overall, we were pleased with the strength of the consolidated performance.
Focusing on our topline results from moment non-GAAP revenue growth in the quarter was driven primarily by our account programs with strong performance in key metrics such as account acquisition gross dollar volume and purchase volume.
The growth in gross dollar volume was driven in part by the extension of federal unemployment benefits and higher levels of tax refund deposit onto our count programs due to the extension of the tax filing deadlines to July 20 Twond.
Altogether. This resulted in increased management service fees from our best partners increased monthly maintenance fees from elevated deposit balances and growth in interchange revenue.
Consistent with the previous quarter. The interchange rate, we earned was down year over year in Q3 due to a 30% increase in the average ticket size per transaction since.
As interchange fees has both fixed and variable components, we are in smaller fees in percentage terms on larger transactions.
Partially offsetting the increase in revenue in our account segment with an increasing cash rewards related to green Dot unlimited counts.
We also experienced revenue growth in our money movement services, primarily due to a 9% growth in the number of cash transfers a significant growth in tax refunds process from the shift in the tax filing deadline and continued growth in new tax processing services, we introduced this year.
Partially offsetting this growth was a year over year decline in simply paid disbursements transactions as a result of the disruption in the ride sharing business from the effects of Covidien 18.
Another headwind discussed on prior calls was the year over year decline in net interest income due to lower yields on our cash and investment balances as a result of rate cuts by the federal reserve earlier this year.
Let me turn my attention to our expenses and margins.
Our total non-GAAP operating expenses in Q3 grew by 42 million or 20% year over year in our margins expanded approximately 100 basis points.
Sales and marketing expenses declined by 5% due to lower marketing expenses year over year, our marketing spend in 2019 was heavily concentrated in the back half of the year, whereas we are studying the spend more evenly across 2020.
The lower marketing expenses, partially offset by an increase in revenue share with our partners, including an increased revenue share rate associated with last year's renewal of the Walmart Moneycard program.
Compensation and benefits expenses increased 18% due to incentive compensation for our employees.
Consistent with our commentary on our prior earnings call. We reinvested some of our plan as teenage cases to incentivize the reward our non executive employees for their extraordinary efforts to serve our customers and execute on our priorities as we navigate through the pandemic.
Processing expenses increased 60% inline with corresponding revenue increase in our bass feet in interchange revenue.
Other general and administrative expenses increased 43%, mainly as a result of an increase in transactional losses from higher volumes of customer disputes in Q2, we experienced a significant increase in transaction losses, primarily due to operational disruptions caused by COVID-19.
In Q3 and likely for the remainder of this year the basis points of loss on transactions will be a headwind to margins as we continue to work diligently on improving the customer experience in a line of fraud prevention processes with the industry's best practices and performance.
Except loss rates will begin to normalize in 2021.
Depreciation expense in Q3 increased 15% year over year due to increased capitalization development costs over the past several years to support our strategic initiatives, we expect depreciation expense to increase in the short term and then begin to flatten out as we reduce the level of overall spend on development by country.
Solid, adding some more products and focusing on prioritizing our development based on strategic impact and incremental operating margins.
From a liquidity perspective, we generated $37 million of operating cash flow during Q3 and $199 million year to date.
Our cash at the holding company at quarter end was $152 million.
The 100 million dollar revolver is available to us should we need it to invest in strategic initiatives.
Now I'd like to focus on expectations for the remainder of the year.
As we look ahead, while our business remains very healthy. It is important to remember that Q2 benefited from approximately $2 billion of gross dollar volume from stimulus funds and Q3 had a follow on benefit from elevated deposit.
Additionally, Q2 in Q3 in aggregate benefited from approximately $2 billion of incremental federal unemployment benefits afforded under the Cures Act.
While we are well positioned to continue to benefit from the accelerated adoption of digital payments. We expect our capex is to continue to normalize that stimulus disbursements roll off and enhance the federal unemployment benefits expire.
Well each of account acquisition gross dollar volume and purchase volume work in Q3 above long term historical trends, we do anticipate that normalization will occur throughout Q4 2020.
One item to note for Q4 that we expect a year over year decline in cash transfers we.
We decided to not renew an agreement with a large reload partner because of our post renewal terms and associated margins did not meet our expectations. Thus our cash transfer volumes and the related topline revenue will be impacted but given the lower profitability of this contract we actually expect the overall percentage contribution margin in our money processing.
Channel to improve.
As we think about the full year 2020, we expect our non-GAAP revenues will be in the range of 1.175 billion to $1.185 billion.
We expect adjusted EBITDA to be in the range of 195 million to $200 million and non-GAAP EPS to be in the range of $1.95 to $2.
These ranges do not anticipate another significant federal stimulus program, nor do we anticipate further economic slowdown from the impact of Covidien team.
In conclusion, we remain focused on reducing the overall complexity of our operations with the goal of generating consistent operating leverage in the years to come we've.
We believe decisions made this year will begin to benefit us in 2021 and beyond speed.
Speaking of 2021.
We expect to provide formal guidance for the year. When we report our Q4 2020 results in February while.
While we are still in our budget process, we would like to provide some insights for you to consider as you build your models first we will have positive impact from initiatives discussed earlier, including new bass partnerships and go to bank as well as various cost and capital efficiencies.
We will also have year over year headwinds associated with the government benefits that positively impacted our 2020 result, as we discussed earlier.
We look forward to providing more detailed discussion on our next earnings call with that operator, let's open the line for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad if.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
Please limit yourself to one question and one follow up if you have further questions you may re enter the question queue.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Bob Napoli of William Blair. Please go ahead.
Thank you good afternoon.
Bob Hey, Bob how.
How are you doing a lot going on just maybe a first question just on direct deposit.
And I'd note prior roles direct deposit was a big focus I know, it's a big focus here.
The 40.
40 penetration rate currently is about 40% on direct deposit accounts did you go is there a strategy around that.
Building that's.
That's a direct deposit customer base at a faster rate.
If so what is it and what kind of penetration rate or other metrics would you judge.
The success of that program.
Okay.
Yeah, Bob I think.
Your question I think illustrates the knowledge awareness of where you are from what we do.
The direct deposit customer is.
Extremely valuable customer so as we when we launch our Challenger Bank initiative.
Early next year.
We will be.
Very focused on driving that direct deposit growth.
With that product.
In terms of any sort of metrics or levels of success can can give those to you at this point, but it's it's going to be a cornerstone to our strategy and our our focus on growth.
Great. Thanks.
Thank you and then maybe just as a follow up.
Now the new partners. The it sounds like you have a pipeline of new large and small.
There's a you mentioned startups and well known brands.
Is there a disciplined approach to those new partners versus what Green Dot has had in the past or.
Is it more partnership as we view it will look at it this generates.
Higher ROI is maybe than some of the partnerships in the past.
No the profile is different.
And I don't know what was shared publicly but from my understanding is.
Or the my my approach is very much of a of a quality instead of a quantity in terms of partners.
And if you think about what we have at Green Dot we have a very unique collection of assets I mean, as I say right now like I don't like the bass acronym.
For us because we do a lot more than just.
Give access to our Ben.
So I think a banking as a service we we can bring to our partners and our partnerships how a bank we can bring.
It just took expertise in terms of issuing plastic we've got a tech stack, we have a reload network, we have customer service call centers management expertise, we got fraud management expertise. So we ran a whole collection of services and so.
Our new approach is not to just let's.
Any fintech come along and kind of take US one one piece at a time of our service, but more look for no large partners like many of the ones. We have they're looking for kind of an all encompassing solution relationships work.
Work to deepen that relationship and bring no.
Powerful products and solutions.
They really nobody else can offer because nobody else has a collection of the assets we have bring those to large partners.
Really drive scale for us in adoption.
Of the masses with those solutions and then on the other side of the spectrum.
More partnerships with companies like big wage.
Itself.
Craig list to see of that and founder that business. He is a tremendous entrepreneur hard charging he's built a great platform.
He's got some great prospects in terms of.
A growing wave.
Begin coming and we want to play in that and we see.
Being able to invest in a company like gateway is truly be their partner.
And help them grow and grow with them in the in the game economy.
That's the strategy was due on our partner approach so.
As I said, yes.
Yeah, but I just read is thats, either large partners with tremendous reach our small very powerful partners with tremendous growth potential.
Great. Thank you appreciate it.
The next question comes from George Sutton of Craig Hallum. Please go ahead.
Thank you and congratulations to me I'm, the latest waitlist customer for the new [noise].
Challenger Bank offerings, So sorry go to bank.
Alright please.
For the year, we will be here go to bank on.
You are seamless and frictionless financial services. So glad to have you on board. If you can handle all my wife's needs very impressed.
No [laughter].
A question competitively Goldman Sachs, just announced entrance into the past market.
Exos had to give up a customer because they had reached too large of a size and couldn't work with Rev share I think Goldman will have the same issue. So.
Curious, how your and I'm happy that you're defining some of your capabilities a little bit more specifically, but I'm curious competitively when I look at that larger landscape and issues that something might run into and.
Ben look at.
Yes, yes.
Sort of some of the bigger opportunities in the space just help us understand when when you're building up this pipeline how competitive it is and I I would also like to add that I I don't need to follow up questions. So this will be a follow up question Bill renewal deals that you Didnt go forward with that and how that demonstrates customers you might be moving away from.
Sure.
So the renewal we pass on was with a a partner that was only using our reload network.
And so we.
What we saw there was somebody who is demanding.
Hi volume the service with next to no margin, sometimes they have margins.
And we were we were not willing to go there, especially as I said there were just doing Alec card solution were all they wanted to use was our reload network. So I would walk from that partner.
In terms of the other thing you other question in regards to two.
So how we as far as our bank grows with all these new partners, how do we maintain the love the asset level.
Right you don't want to get into a lot of detailed map or other just to share that we're very confident that as we structure our business, Greg grocers now the CEO of our bank.
We can we can run our bank, we can stay below the 10 billion asset level for a long long time with very significant volume coming across.
Our institution and.
And if you compare that to say you know a Goldman Sachs bank or whatever banks, rather now jumping on the bass wagon.
Yeah, those banks are entirely different types of banks than we are.
Those are traditional financial institutions that do all sorts of banking and lending and they want to be 300 400 billion in assets and so.
So they will have a different issue.
And we will we will be able to protect our revenue with higher interchange by maintaining our.
$10 billion or less asset size.
Awesome. Thank you.
Yes.
The next question comes from Andrew Jeffrey of Truth Securities. Please go ahead.
Hi, Good afternoon I appreciate you taking Anderson.
Sure.
I Wonder if I could.
Maybe build on.
Bob's question with regard to I guess more specific with regard to unit economics.
Taking a look at the go to bank site.
I, maybe a little bit behind George as far as getting all the waitlist, we'll get there.
And looking at cash back and some other products.
The the consumer incentives seem competitive quite quite rich and I. Appreciate the focus on direct deposit Dan can you just give us some comfort that these are really good ROI products. Despite whether it's six or 7% cash back. Those are those are pretty those are pretty juicy returns or rewards.
[laughter].
I'm really glad you asked that question was that kind of would have literally almost skepticism.
Right no seriously because im not going to go off and you know okay [laughter] not how you make your living I know.
No absolutely the economics on this product are going to be stronger than I think any product that that you know that we have a green dot currently.
And those six and 7% cashback rewards. Those are those are those returns are funded by the merchants who are issuing those those reward program. So those will come as a cost to us. So it's really about how we can be creative and designing really value rich.
Opportunities propositions for the consumer.
Now that they love and embraced and we still preserve the very good economics on our product.
Okay.
A follow up I guess I'll have press my luck.
The GATR.
As a skeptic.
No we have a product that.
For example that hasn't been announced but we got maybe a little bit of a sneak peek around yesterday, the Amazon flex product.
I mean do you how do you feel like and that's just one example, I mean do you feel like there's a.
There is a means of pressing the advantage over the long term you know in terms of getting customers like that.
To participate in funding rewards I mean, that's a.
Thats.
That's obviously a clear positive I just wonder if you could frame up.
Thats a sort of sustainable.
Economic model given the size of the customers yes.
Yeah, I think thats. It Thats just an example of the sort of things that we're.
We're going to want to explore with our partners.
And it's part of our new approach.
Around our partner strategy.
Of.
How can we create.
Compelling solutions or let's say, we have a we have a partner who is a retailer.
Well, we have a bank we have the ability to to we could we can open up with very little friction.
Digital wallets that can reside and the apps of our partners. That's what we do now.
And we could create.
Credit building tools for consumers with our partners, we can actually even create on small low risk loan products with our partners, we can together with our partners.
As you know just as you mentioned I create rewards.
Thanks for the consumer so that's where I get really excited about what we're doing here is as you think about.
Well go to bank.
Thank you.
We are.
Very focus on creating powerful products and solutions for.
Our direct to consumer business.
Those products and solutions that we create we can easily expanded offer those to our partners.
Whereas you weaken the market and we can reach a couple 23456 10 million customers on our own.
We can take some of the products and solutions that we have created bringing us all our partners and we can then be reaching consumers in the tens to hundreds of millions at a time.
So yes, you're you're spot on in terms of them up from a long term perspective of being able to work with and engage with these partners we have the opportunity to.
To reach a very very large number of consumers in this country.
Thank you.
Thank you.
The next question comes from Ramsey El Assal of Barclays. Please go ahead.
Hi, Thanks, so much for taking my question Tonight.
I wanted to ask you about about 10, 99 and gig economy and the opportunity for the company I mean, given your investment gig waves. The Amazon product you already have an over product out there is should we view this as sort of almost the primary opportunity for bass, we talked about those kind of the pipeline is full and potentially.
Announcing new partner sand is this a real strategic pivot for the company kind of into that developing product specific to that kind of opportunity set.
Okay.
No it's not Ramsey it's.
It's not a pivot it's not a new direction.
It is but it is.
A an important growth channel for us so I kind of I would like to.
I'd, rather ride the wave Impella canoe and so I look for for waves and to me. The gig economy is way if it's a growth wave and so if we can if you think about our partnership with Guber on this investment in partnership with gig wage other potential.
Options that are out there.
We are we're becoming a well equipped to serve the gig work Im just as we are very well equipped to serve a low to moderate income consumer just as we are working to be very well equipped to serve small business.
And two lads.
And all of those avenues.
Avenues.
We will leverage the common denominator is that we have from a bank reload network customer service fraud controls et cetera, So thats so its.
It's absolutely it's a great question I want to be clear. This this is not as you know and Thats gets a funny. This is not a square switch on and that it has it is a way to basically take these assets that we have and the skills that we built over decades.
And how do we stack new opportunities on top of them to just drive incremental revenue with attractive margins.
But some exercise EPS.
My follow up is on go to bank and Im just wondering if you could kind of encapsulate for us what what is different about this offering relative to other kind of prior mobile first.
Green Dot products like unlimited and Gobank is it more the distribution.
The product structure itself sort of different I was just wondering if you could elaborate there a little bit.
Yes. Thank you for this question Ramsey, it's the big difference is our commitment.
And so.
Go to bank is very different from all products that have been launched in the history of Green Dot because.
Go to bank is it.
Thank you just going forward there is no more NASCAR theres no more puppy dog cards, there's no more.
I'd cards, Okay. It is its go to bank.
And we'll go to bank is going to be go to savings and is going to be go to.
Other solutions that are feature functionality tied to this go to bank account.
For our consumer that we want to.
Take this product will and by the way.
It's a real bank account because this issue by Green Dot bank. So it's not a marketing company is hanging on someone else's. Ben. This is a go to bank issue products. So that we can we will really be able to create.
[noise] products and solutions to serve the full financial needs of our customers. So our our goal here in our intent is how are you.
You will you will not be hearing a new product launch every single year from Green Dot.
You will be hearing about feature functionality additions to the gobank product on a regular basis for years to come.
Okay, alright, thanks, so much thats super helpful.
Great. Thank you Randy.
The next question comes from Andrew Schmidt of Citi. Please go ahead.
Hey, Dan Hey, Jess Thanks for taking my questions here.
First first question on a gross new customer acquisition. So now that we have a couple of quarters post stimulus under our belt.
Talk about what you're seeing in terms of organic account growth in the quarter for lack of a better car meaning.
Ladies who all of the level, let Lou ads from non squamous non unemployment benefit customers all helpful. Much appreciate it.
That's a good question, Andrew I think it's hard to really pull apart what stimulus and what stimulus I can't say that we have seen an elevated amount of new customers coming into the system.
And again sort of hard to dissect, whether they are coming in for non stimulus for students reading.
But to get across Q2, and Q3, we saw a significant amount of.
New acquisition, both in retail and then the strength of the direct business, which is in part the better marketing effort that we have in the better cost per funded but also in large part to the dish.
Stimulus funds and just the attractiveness of our products get this digital acceleration.
I understood. Okay. That's good and then just my follow up maybe we'll ask it but there's obviously a lot of news about Omega out there I was hoping to get your view about philosophically how you feel about scale acquisition versus capability is just philosophically interest will put kind of.
Getting to the point on the makeup.
Viewpoint in terms of what.
Are we looking to to grow through acquisitions or just like.
What I am not.
And it real clear what you're asking.
Yes. The question is how much of a priority is it M&A versus growing organically and then when the warm or M&A. You know are you open to more scale acquisitions or would be more capability focused.
Got it got it.
So.
What I really like about what we have.
In front of us at Green Dot is we have a real significant growth opportunities and potential without any acquisitions.
And I've always said is it.
Your are we on our inorganic growth is much higher than acquired growth. So I.
Mhm.
When.
One of the Big Phantom believer of organic growth that comes with it.
It comes with a lot fewer problems, you're not you're not trying to integrate new culture whatever out there you know what you've got when you are signing customers and growing customers.
The main impact on your existing infrastructure and you're using your core competency. So we don't need acquisitions to grow so I want to make sure thats perfectly clear.
However from a standpoint of are we open absolutely no. We're absolutely open to two acquisitions that will.
Enhance our our functionality.
Accelerates our ability to exit two to grab some opportunities or just kind of incrementally add to our to our current volume.
So yeah were and those would be from a.
Small add ons to two larger is that what might be in transformational.
Okay understood. Thanks, B. I think just to pick up.
Thanks.
The next question comes from Steven Kwok of KBW. Please go ahead.
Hi, Thanks for taking my question. The first one I had was just around the early look into 2021, I know you called out roughly $4 billion of stimulus in unemployment benefit should we think of that as being a rally 40 million dollar revenue headwind. If you just use like a roughly 1%.
Change right and then.
Is there any early indication around like the what the margins on that could be and you mentioned theres a positive headwind.
I would have thought tailwinds filed a new business it sounds like.
As of right now do you feel like those can offset.
Actually what the headwinds could be connected thanks.
Sure Good question.
Jeff you want to you want me to take that yeah, I can take it look I think there is a lot of puts and takes associated with Cobian 2020 portion of our business were negatively impacted we would hire dispute call center costs.
While other portions of our business where were positively impacted by accelerated demand for digital payments and the government benefits.
And it's really hard to sort of isolate the direct impact of the government benefits specifically, so I think as you think about 2021 trend in gross dollar volume per active will really start to normalize from what you've seen in Q Q2 in Q3.
Ultimately, we believe we'll be in a better place through long term because of that digital adoption.
And I think.
I think about sort of what that GDV means I think about it in GTB yield as opposed to Nestle just interchange as their speed and other things associated with it but we can speak more to our 2021 guidance on the next call.
Got it.
And separately there was an article out they are around.
Perhaps by the credit card, but tax business.
Its just wondering is it something that you guys would possibly look at and separately given that there would be about helping input around that I know you guys have a relationship with intuit as well so just wondering.
In terms of your relationships with inputs like how long are those contracts locked up for thanks.
I believe we announced that we recently renewed the into a contract. So we have a number of years now and that new contract remaining.
We don't want to get in tax preparation business so but.
But again as.
Well, we did we did that.
That opportunity.
Did come across the desk, but we decided that that's not in our sweet spot of set of skills capabilities, when where we where we see our growth potential.
Great. Thanks for taking my question.
Absolutely. Thank you Steve.
The next question comes from George Mihalos of Cowen. Please go ahead.
Hey, guys. Thanks, Thanks for taking my questions just as fast rejoice.
Hey, Dan ask two quick modeling questions.
And ER and then I'll, then I'll hop off I guess, the first can you quantify or maybe I missed it how much of an impact the non renewable from the relo partner will be how much of an impact that's expected to have in the.
In the fourth quarter, and then the lower interchange yield, which I think was attributed to two larger around the transaction size would you expect that to.
Sort of kick back up in the fourth quarter and sort of be more in line with what we've seen over the first half of 2020, thanks, and I'll I'll pop off.
Yes ill take that one so yeah on the latter question around interchange yield we're already starting to see some of that normalize back to what we see in the path of say 120 basis points. So [noise].
The further we get from those stimulus funds coming on the the more the interchange rate normalizing to your first question around the reload partner.
You know, we're obviously focused on generating strong strong cash flows and margins, sometimes that means you need to walk away from deals.
But I think what I think of Q4, we expect cash transfer volume to be down year over year.
We expect the margins of our money processing business to be up.
And as we think about the future we have a pretty.
Pretty active BD pipeline for new reload partners intend to add new partners next year.
And then as you think about go to bank in our consumer products in general and the us bringing him back to health as we grow our best partnerships et cetera, We believe the reload network profit margin will improve despite losing some third party reload volume because we make more money off of reloads on our own products that we do on our third party products.
Thank you.
The next question comes from Ashish Shopper of Deutsche Bank. Please go ahead.
Hi, Thanks for taking my question I wanted to ask.
Just on the small business accounts, you talked about into it and cabbage I was just wondering if you could help but.
Okay. If you could talk about how big that addressable market as and our strategy going forward would you expect to sign up a liquid but no. It does that also strategy to go direct.
But to.
Try to address the small business effective and that finally is the go to banking also the solution for the small business customers. Thanks.
Yes, you should go to the bank is not the solution for the small business customers. However, if you think about a lot of small businesses in this country are sole proprietors and individuals so.
Yes, but the the feature functionality on go to bank is very possible that small independent operators. So buyers may pick up our go to bank product.
And make it make it their account, but that is that's definitely not the intent or that the design of the product our opportunity around small.
Business in the country and it's just very large meters millions of small businesses in the United States.
Our partner Quickbooks, they have 8 million small businesses alone that use their their solution. So.
I think as we talked on the last call as in the press release.
Could you do your research and see those numbers, but.
We are quickbooks is offering again quickbooks cash account, which is basically a bank account thats that's operated by Green Dot Bank.
We receive income off of offers that account.
And we are very enthusiastic about the growth potential on week.
Notebooks. They can just you know [noise].
12, 15% penetration into their their base will be a million customers and millions and millions more business accounts on our platform.
And similar opportunity with cabbage, and where we have a.
Thank you counted debit card issuer for CAD or small businesses with cabbage Youre now being part of American Express you know that the growth potential there and on the marketing impact of American Express behind that product is very exciting.
I can't quantify where you're right now, but it is it is bigger than a bread box.
That's great that's great and maybe just a question on up election outcome.
Entcho far out a small second stimulus or how should we think about impact if any on the green dot because a lot of the cup somebody's Arlington Bank under bank, but at the lower end of open pit.
Pet segment.
Well.
Great that customers by the nature of how to bring our product to no longer on bank.
So a stimulus another stimulus shack would like.
Like the prior lines would would be a positive to green dot.
And the positive in ways you guys had been positive will be positive in the immediate term just additional funds to our customers will come onto the accounting will be spent and generate revenue for green dot, but it will also create additional impetus for cash based consumers choose to adopt our products and engage in electronic payment method.
So what we believe is we believe and we are already benefiting from having accelerated change in consumer behavior around electronic payments.
Okay. Thanks, that's very helpful.
Yes, Thank you Ashish.
Thanks.
The next question comes from Jeff Cantwell of Guggenheim Securities. Please go ahead.
Hey, Dan Nice to see you guys performed well this quarter sluggish touch on a couple of the key themes here by asking you two very simple questions.
But I hope to give us. Your response on first can you can you tell us what some of the learnings have done this past quarter as you're modeling through this pandemic or where.
Where you're growing more confident about green dots revenue opportunity going forward.
We certainly noticed your comments about small businesses, which I think are very timely on for example, but where are you getting more confident and where you Conversely thinking more medically.
About the company I mean, I have a follow up after that thanks very much.
You said are going to ask a question and you hope to get Mike I think you said a serious limited non flipping to answer.
Yes, I'm trying to I mean it.
Hey, I feel more confident about all areas of the company.
I'm I'm feeling.
We still have a lot of work to do.
I will not.
Yes, I'm not going to sugar coat that Weve got a lot.
A lot of bad ingrained habit that we had to change across the organization, but I'm feeling really a seismic shift inside the company to where.
We have a tremendous amount of talented people, who really care about what we do or they care about doing a good job and as we as myself and other other leaders are providing clear direction in terms of here is what we need to do and why.
Here's how we generate revenue I hear as wide margin is important.
The light bulbs are going off and people are really starting to do the right thing.
And.
I see we've got growth potential.
In all areas of our business [noise].
Even now.
I'll pick on retail because I think everyone kind of believes this in America today with the your shift to so much being online is that retail as an entire sector.
Across the economy.
Hasn't headwind.
Now and so and for our business, we were not immune from the challenges of foot traffic is dropping and retailers, but whereas a very into.
Interesting conversations with a number of our retail partners now how can we expand our footprint.
Not just in their store but into.
The daily.
Lives of their consumers, how can we expand financial services and offerings onto to their customers and partnership. So I believe that we've got growth potential in our peak our business and our tax business in our retail business certainly in our direct to consumer business and.
What I love about all of that is you think about.
The competitive advantage that that affords us.
In terms of striking out on on Oh.
Powerful disruptive.
Yeah.
Large opportunities with a lot of our Bash partners.
We've got a bank.
All the assets have already rattled off reload network bank.
Call Center operation fraud controls technology stack all of those solutions are quote unquote bought and paid for our with our existing core businesses, which are all growing and.
So now if we want to get creative and aggressive and with some major partners. So we can quote unquote collectively change the world.
Got that opportunity.
Okay, that's great color enough that leads to my follow up.
We would go to bank can.
Can you drill down a little bit for us on the strategy are there for customer acquisition.
I'm I'm hearing you on the go to bank value proposition.
I'm understanding that you know the strategic rationale for making us to go to go to product. So so Dan.
Obama consumer in your 2020.
I have a number of options right. How these new your bank options, our traditional bank options and how green dot.
So my question to you is given all your experience in the industry.
I wanted to ask if you can help investors understand how you're going to drive new customers to green dot.
Thanks.
Sure I.
I think that's what's what's important is to say and I've tried to your life started.
For the last 10 or 15 years.
The total available market is tremendous.
And it's not as zero sum game.
So just just as there is.
Chase and Wells Fargo, and Bank of America, and Compass and CBVA I mean, there is room for a significant number of.
Advise if you will.
Offering solutions to consumers and so.
We will market.
And our traditional fashion that we have done.
Going to do as much as my opinion, what we're going to do it better smarter on we're going to do significant amount of research leased we spend our money effectively.
On a tremendous amount of research around the main go to bank in the design of go to bank research around the products, we're offering and how pricing them.
So we'll get a better return on everyone of marketing dollars that we spend.
And.
Hi.
I know this.
I just notice I notice from my days at Netspend I notice from sitting on a on the on the board and be an investor and other.
Prepaid companies over the years that you build a good solid product.
And you marketed effectively you will get your fair share of customers and so we will.
We will get our fair share of customers unique custom customers, we'll just have to choose between us and the casino and a few other offerings no and no.
We'll get our fair share customers will choose our solution over others, and we will grow that business.
Okay, great appreciate it thanks very much ABS.
Absolutely. Thank you.
This concludes our question and answer session.
The conference has now also concluded. Thank you for attending today's presentation you may now disconnect.
Mhm.