Green Dot Corporation (GDOT) Q1 2021 Earnings Report, Transcript and Summary

Good day, and welcome to the Green Dot Corporation First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ali Lubert, VP of Communications. Please go ahead.

Thank you, and good afternoon, everyone. Today, we are discussing Green Dot’s first quarter 2021 financial and operating results. Following remarks, we will open the call for questions. Our most recent earnings release that accompanies this call and webcast can be found at ir.greendot.com. As a reminder, our comments may include forward-looking statements and expectations regarding future results and performance. Please refer to the cautionary language in the earnings release and in Green Dot’s filings with the Securities and Exchange Commission, including our most recent Form 10-K and 10-Q for additional information concerning factors that could cause actual results to differ materially from forward-looking statements. During the call, we will make reference to our financial measures that do not conform with Generally Accepted Accounting Principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today will be on a non-GAAP basis. Information may be calculated differently than similar non-GAAP data presented by other companies. Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today’s press release. The content of this call is property of the Green Dot Corporation and is subject to copyright protection. Now, I’d like to turn the call over to Dan.

Greetings, all, and thank you for joining us. We’re pleased to announce a strong first quarter of 2021 with revenue well ahead of the guidance provided in February, even despite the well-documented shift in tax volumes from the first to second quarter. For the quarter, we delivered $380 million of non-GAAP revenue, adjusted EBITDA of $73 million and non-GAAP EPS of $0.83. As we communicated last quarter, we intend to reinvest outperformance back into growth initiatives, which is what we did with revenue upside in Q1. Before jumping into the results, I want to talk about some important changes we’re making to our segment reporting and why we are doing it. Starting this quarter, the first quarter of 2021, we will break down our numbers into three key segments: first will be our Consumer segment, which includes Green Dot’s retail and direct businesses; second, our Business-to-Business segment, including BaaS, or banking platform services, and our Employer business branded as Rapid; and third, our Money Movement segment, which includes our tax processing business and our money processing network, also known as Green Dot Network. Our purpose in making this shift is to deliver greater clarity on what’s driving performance and the key contributions across our individual businesses and to help investors better appreciate our long-term strategy and areas of investment moving forward. We will also provide better clarity on our key metrics of active accounts and direct deposit accounts in different segments. This is intended to give investors a deeper understanding of the growth metrics we focus on across our different lines of business. On our last earnings call, we declared 2021 will be a year of both growth and investment focused on creating a leaner, more stable, growth-minded company in the years to come. We intend to make strategic investments in marketing, people and technology to grow our base of GO2bank customers and to reduce the overall complexity of our enterprise, with the goal of generating significant bottom line growth in 2022 and consistent operating leverage in years to come. Before passing over to Jess for a deep dive on our financial results, allow me a few minutes to walk you through highlights from our three segments of Consumer, B2B and Money Movement. First, our Consumer segment, including retail and direct, is showing solid year-over-year revenue growth. And combined, this segment’s revenue increased 21% in the first quarter. Meanwhile, contribution was up only 6% in Q1 due to our aggressive marketing spend fueling GO2bank’s customer acquisition strategy. Our Consumer segment alone has more than 4 million active accounts and close to 1 million direct deposit accounts. In the first quarter, active accounts grew by more than 10% year-on-year, and our direct deposit active accounts grew by 9%. A few additional highlights on the Consumer segment. Our Consumer business, a combination of our retail and direct businesses, is a powerful customer acquisition machine. While our retail network may not be the choice banking channel for high net worth individuals, these retail locations are some of the most important destinations in the daily lives of the more than 100 million low-to-moderate income consumers in America. Our retail network is made of 90,000 locations nationwide, including direct integrations with some of the largest retailers in the world, such as Walmart, CVS, Kroger and several others. This is a powerful competitive advantage we have in growing our consumer business as we offer customers the convenience of these locations to deposit and withdraw cash from their accounts, pay bills and move money. From these 90,000 locations, we saw a 9% year-over-year growth in funded accounts in Q1. Powering payments and retail integration is part of our DNA and with our valued retail partners, we will continue delivering a unique set of products and capabilities to the consumer, both in and out of the store. Now in our direct business, and particularly GO2bank, revenues are up significantly, demonstrating strong demand and opportunity for growth. Hence, our decision to invest aggressively in marketing and delivering an exceptional customer experience that will fuel long-term exponential bottom line growth. GO2bank customers are engaging with us online and in the app at impressive levels. GDV and purchase volumes both ended the quarter significantly above expectations, up 28% and 22%, respectively. Consumer-friendly overdraft in our direct business continues to perform, outpacing expectations on enrollment, actives and revenue. And I’d also like to note that over 65% of the overdraft transactions we cover are no fee transactions, which means we’re helping our customers when and where they need it most. We plan to extend this feature to all product portfolios at the end of this month. We will continue to invest in and expand GO2 with tools and features that help our customers build and improve credit, access lending products and build a stronger financial foundation overall. And considering our Consumer segment alone has more than 4 million active accounts and is growing at double digits, coupled with the growth rate we’re seeing in GO2bank, this segment is larger and growing faster than many of the most popular neo-banks in the market today. Now let’s move over to our B2B segment, consisting of our banking platform services, or BaaS, and our Employer platform. Revenues are up in this segment as well, while contribution margins are tracking lower due to several factors. Our banking platform services, or BaaS business, is relatively young, and we remain focused on investing in and strengthening our platform while deepening our partnerships and delivering stability and scalability for years to come. Additionally, some of our BaaS contracts were designed with a flat fee, creating a declining margin situation. Our plan is to evolve the way we frame these agreements moving forward. We see significant opportunity and potential in this part of the business and the focus now is setting a solid foundation and investing in our partnerships, which present tremendous potential for innovation, growth and contribution as we continue diving deeper into embedded finance. As you know, we added a number of significant partners in the second half of 2020, and we’re spending a lot of energy and resources on strengthening and innovating on behalf of our partners with a focus on high-growth segments where we have expertise. For example, the gated economy where we’re working with partners like Uber, Amazon and Gig Wage; next is small business and partnering with innovative and highly respected brands like Kabbage and Intuit; and finally, investing, powering innovators like Stash and Wealthfront and their missions to make investing more seamless, accessible and affordable than ever before. Our commitment to seamlessly connecting people to their money was exemplified in Q1 when we delivered stimulus funds to millions of our BaaS partners customers up to four days earlier than most finance institutions. This is yet another proof point of the value of having our own bank and platform as we can move and make decisions quickly to benefit our partners and their customers. Now let’s talk about our Employer platform business, branded as Rapid, which is a valuable asset that is not often discussed within our B2B segment. Favorable employment trends, including current clients adding employees, more companies looking for best-in-class PayCard solution and also strong interest in disbursement and early wage access have translated to solid growth in Q1 with net revenue up 11% year-on-year. This is very impressive considering Q1 2020 was pre-COVID. We added 336 new employers in Q1, bringing our total to nearly 5,000 small and medium-sized businesses utilizing our products. We also continue the rollout of our new early wage access and disbursement products to existing and new employers. Investors should take note that our Rapid PayCard is currently used by only a small percentage of employees of our 5,000 clients who don’t have a traditional bank account. However, early wage access is a valuable and attractive service to all 7 million employees of our 5,000 small and medium-sized businesses. The value of and demand for early wage access is significant. And we expect this product to increase revenue and operating margins in this business segment over time. Finally, our third segment is Money Movement, which is made up of our tax processing business and money processing. In our tax processing business, as we shared earlier this year, we secured a long-term contract renewal with a key tax processing partner. With this renewal, we expected to experience a onetime decline in the program’s revenues in 2021. But more importantly, this contract renewal set us up with long-term stability, predictability and growth going forward in our tax business. The IRS reported refunds were down 16% nationally during the quarter. We have very good visibility into the volume of returns submitted through our tax partners. The IRS is delayed in processing tax pay returns due to the priority given to EIP3 and child tax credits. Once the IRS catches up on processing returns, we are confident we will deliver on our management plan for a tax processing in 2021. Now moving on to money processing, also referred to as the Green Dot Network. The Green Dot Network is a money movement network unrivaled in scope and capabilities. Our network consists of more than 90,000 retail locations across the country, more locations than all the bank branches in the U.S. combined. Through this network, we offer greater accessibility than any other bank or finance institution in the U.S. In fact, there is a Green Dot Network location within 3 miles of 96% of the U.S. population. In addition to Main Street, our network is in cities and small towns that traditional banks have abandoned. The value of this network is evidenced by the more than 200 partners whose customers depend on our network when face-to-face interaction is needed, customers who need to transfer funds, pay bills, send money, deposit or withdraw cash. And although cash transfers were down year-over-year due to a non-renewal of a large partner, the Green Dot Network is still experiencing significant growth, driven by new products and new partners. A few points to illustrate the depth and potential of this network of ours. The first quarter, we added another 13 new partners, including PayFair and SoFi. Our existing neo-bank partners delivered 18% year-on-year growth in transaction volume. Our point of banking service, where traditional bank customers can deposit funds to accounts outside of their bank branches, saw 53% transaction growth year-on-year. We recently integrated a top online bill payment provider in the U.S. to allow customers to pay their bills with cash utilizing the Green Dot Network. We are expanding the barcode cash withdrawal capabilities at Walmart and several other national retailers for a number of existing and new partners. Push-to-debit is becoming a very popular way to move funds digitally in the U.S. Green Dot is currently a top five U.S. push-to-debit provider. And as we combine push-to-debit offerings together with our cash access network, we see great opportunities to expand to other verticals, including digital card programs, gaming, insurance, claim payouts and lending. All in all, our money processing business delivers durable cash flows generated from more than 200 partners, all with minimal ongoing maintenance. We hope that our new segment reporting will offer greater clarity on the value of this business and all the businesses within Green Dot. Finally, I’d like to point out an important dynamic related to deposit balances and savings held for our customers at Green Dot Bank. Deposits are currently at levels twice what we saw at this time last year, up nearly $2 billion. We believe this is an indicator of consumer cautiousness stemming from the pandemic and related uncertainties as we expect a large sum of these deposits will translate to increased purchase volumes in the second half of this year. We remain steadfast in our commitment to reinvest incremental revenues in the business, focusing on areas present the most growth potential like GO2bank and BaaS, as well as strengthening the foundational building blocks of our company, including core processing, card management and the customer experience. 2021 will be a year characterized by steady growth and investment, setting us up for long-term stability and significant year-on-year growth in 2022 and beyond. With that, I’ll pass it over to Jess to give you a breakdown of our numbers.

Thanks, Dan. Good afternoon, everyone. Before I get into our financial performance, I’m going to spend a few minutes on our revised segments and changes to our key metrics. To reiterate Dan’s comments earlier, we have three exciting segments of our business, each with its own focus and growth trajectory, Consumer Services, B2B Services, and Money Movement. Our intention with the revised segments is to bring greater clarity to our financial performance, our long-term strategy and areas of investment. Segment profit reflects each segments net revenue less direct costs, such as sales and marketing expenses, processing expenses, third-party call center support and transaction losses. Our corporate and other segments consists of net interest income earned by our bank, eliminations of intersegment revenues and expenses and fixed costs that we don’t allocate back to the other segments. These fixed costs primarily represent salaries, wages and related benefits for our employees, professional service fees, software licenses, telephone and communication costs, rent and utilities and insurance. You’ve heard us say it before, if we keep our fixed costs fixed and make smart, profitable investments to grow our three segments, we will expand margins each year. In addition to our consolidated metrics, we’re now also providing certain metrics at the segment level. We’ve also revised the definition of our direct deposit active accounts metric in two ways. We limited the metric to our Consumer Services segment, meaning it no longer includes direct deposit active accounts in our B2B Services segment, and we’ve narrowed the definition to include only active accounts that have received one or more payroll or government benefit transactions during the period. This revised metric is intended to better reflect the core subscription-like customer base you expect from a payments company. Generating consistent bottom line growth each year in our Consumer Services segment will be tied to our success in attracting and retaining direct deposit accounts across both our retail and direct channels. There have been no changes to our definitions of our other key metrics, and no changes to our previously reported consolidated financial results. For more information, please reference the 8-K we filed earlier this week, furnishing supplemental financial results and key metric data for 2019 and 2020 under our revised reportable segment structure and revised direct deposit active account metric. Now I’ll jump into the quarter. We delivered another strong quarter despite a significant weak and delayed tax season. Our Q1 2021 non-GAAP revenue grew 10% to $380 million, and we delivered adjusted EBITDA of $73 million and non-GAAP EPS of $0.83. Focusing on our top line results for a moment. Non-GAAP revenue growth in the quarter was driven by our Consumer and B2B segments with strong performance in key metrics such as gross dollar volume, purchase volume and active accounts. The growth in gross dollar volume was driven by higher active accounts from new and existing customers, utilizing our platform as the accelerated demand for digital payments continues. Stimulus also provided a benefit in the quarter as we received approximately $500 million of gross dollar volume in early January, and approximately $3 billion in March from the second and third round of stimulus, respectively. All in, our consolidated gross dollar volume grew 45% year-over-year. Excluding stimulus, our gross dollar volume still increased by a very healthy high teens rate year-over-year. Our consolidated purchase volume and the number of active accounts grew 26% and 11%, respectively. Let me turn our attention to segment revenue, profit and margins. In our Consumer Services segment, gross dollar volume, purchase volume the number of active accounts and direct deposit active accounts grew 34%, 28% and 10% and 9%, respectively. The growth in these metrics resulted in increases in interchange revenues, monthly maintenance fees and ATM fees. Consistent with prior quarters that have been impacted by stimulus funding, the interchange rate we earned was down year-over-year as the average ticket size per transaction increases. Since the interchange fees have both fixed and variable components, we are smaller fees in percentage terms on larger transactions. Overall, our Consumer Services segment revenue grew 21% year-over-year. We believe that excluding the impact of stimulus, our revenue growth rate, we have still been pushing double digits year-over-year. The exemplary performance in this segment is a stark contrast to the declining revenue growth rates over the last few years, and we’re gratified that the strategic focus has resulted in such strong momentum. Expenses within this segment grew 28% year-over-year due to our investment in staffing of third-party call center support to meet the demand associated with the federal relief programs. As we mentioned on our last call, improving our customers’ overall experience and building a service infrastructure capable of handling a larger ecosystem is one of our growth-oriented investments in 2021. The increased customer support costs were important to continue to earn and keep our customers’ trust, especially during such a trying time. Expenses also increased year-over-year due to the timing of our marketing spend. We took advantage of the tax season to promote our GO2bank product and, in doing so, are front front-loading marketing spend in the first half of the year. Lastly, transaction losses were up year-over-year in connection with the growth in purchase volume. As a result of our investments in customer experience and marketing, we allowed our year-over-year margins to compress. And consequently, our segment profit was up $3 million or 6%. In our B2B Services segment, gross dollar volume, purchase volume and the number of active accounts grew 56%, 21% and 12%, respectively. The growth in these metrics resulted in increases in BaaS partner fees, interchange revenues and monthly maintenance fees. Similar to our Consumer Services segment, we experienced a decline in our interchange rate as a result of an increase in the average ticket size per transaction. Overall, segment revenue grew 44%. Absent stimulus, we believe our B2B segment revenue would have increased double digits year-over-year. Expenses within this segment grew 64%, primarily from an increase in processing expenses, in line with corresponding revenue increases in our BaaS partner fees and interchange revenue. As we’ve mentioned in the past, a portion of our processing expenses are passed through as fees charge to our best partners. Like our Customer segment, our B2B segment experienced heightened costs from customer support and transaction losses associated with GDV and purchase volume growth. We’re also experiencing margin compression in our B2B segment because some of our BaaS contracts were designed with a flat profit, and therefore, our profit isn’t scaling with revenue growth. BaaS is our newest channel of business, and we remain focused on investing behind it and exploring new partnership agreements moving forward. Overall, our B2B segment profit declined $2 million or 12%. Revenue in our Money Movement segment was down 25% year-over-year due in large part to the shift in the timing of tax refunds processed from the first quarter to the second quarter of 2021. And as a result of the extension of the tax filing deadline and potentially a backlog created by stimulus funding. Our tax refunds processed in the quarter were down 23% year-over-year. As a comparison, through the first quarter, the number of refunds processed by the IRS were down 16% year-over-year. Throughout April, the IRS has made significant progress, and both the IRS and Green Dot are down less than 10% year-to-date. Consequently, we anticipate seeing this high-margin revenue materialize in Q2, while also seeing volume that typically occurs in Q2 to spill over to Q3. In addition to the delayed tax season, the two headwinds we discussed on our last call impacted the Money Movement segment. First, a multi-year agreement with one of our largest tax partners was accompanied by lower economics on tax refund transfers. As Dan mentioned, this one-time decline in revenue is outweighed by the long-term stability, predictability and growth associated with the contract renewal. Second, our decision not to renew a significant reload partner resulted in a decline in cash transfers and revenue. Because this contract has less favorable economics and a higher than average revenue share, the overall impact on segment profit from this non-renewal was muted. Overall, segment profit declined $18 million or 27%. We believe a majority of this decline will be recovered as it simply represents a timing shift in high margin tax revenue. Moving below adjusted EBITDA, depreciation expense in Q1 decreased 4% year-over-year as a result of our efforts to reduce the level of overall spend on development and prioritizing it based on strategic impact and incremental operating margins. Our diluted weighted average share count increased by 2 million, primarily due to equity awards granted in 2020. From a liquidity perspective, Green Dot continues to produce substantial cash flow, generating $81 million of operating cash flow during the quarter, and our cash as a holding company at quarter end was $162 million. Our cash balance and the strength of our operating cash flow, together with our $100 million revolver available to us, provide us with sufficient liquidity to invest in our strategic initiatives. Now I’d like to focus on guidance for 2021. We’re raising our non-GAAP revenue guidance in light of stimulus and other factors to a range of $1.27 billion to $1.29 billion. We are reiterating our guidance range for adjusted EBITDA of $210 million to $217 million, and our non-GAAP EPS range of $2.06 to $2.15 for two reasons. First, we’re being cautious with our guidance, and COVID is still clearly creating uncertainty in the economy. Second, we believe it’s prudent to continue to reinvest revenue upside in 2021 back into marketing for GO2bank, improving customer experience and building a modern and scalable core banking platform as we believe these investments will accelerate revenue growth and allow margins to expand in 2022 and beyond. Even with these strategic investments, our reaffirmed adjusted EBITDA range reflects year-over-year growth. As you think about your models for Q2 and the remainder of 2021, there are a few items to consider regarding our guidance. In Q2, we expect to see a continued benefit from the March 2021 stimulus funding in our Consumer and B2B segments. However, we will have a headwind from the $2 billion of stimulus funding that occurred in Q2 2020. We expect to grow over that revenue headwind in both segments but continue to have year-over-year margin compression in these segments from heightened third-party customer support costs that are needed to continue to support stimulus related call volume. In addition, the timing of marketing spend will create additional compression in our Consumer segment. Our full year Money Movement segment revenues and profit are forecasted to be down year-over-year from the two headwinds I discussed earlier. We expect to see a shift in tax refunds processed from Q1 to Q2 and volume that typically occurs in Q2 to spill over to Q3. As for our corporate and other costs, we anticipate an increase in the second half of the year as we invest in the modern banking platform I mentioned previously. Those costs will be in the form of people and technology, and therefore, our compensation and benefit expenses are expected to increase year-over-year and components of other general and administrative expenses, such as software licenses and hosting costs, are expected to be up year-over-year. As we discussed on our last earnings call, the returns on these investments will appear within 12 to 24 months. Specifically, beginning in 2022, we expect the investment in our modern banking platform will begin to reduce a portion of the processing expenses and enhance margins. Although we don’t typically provide quarterly guidance for adjusted EBITDA, in light of the historic delay in the tax season, two stimulus programs this year, our investments in marketing for GO2bank and our new segments, we feel it’s constructive to provide clarity around the cadence of EBITDA performance for the remainder of the year. Based on the midpoint of our reaffirmed full year adjusted EBITDA guidance, our forecasted EBITDA cadence is as follows: 34% in Q1, 20% in Q2, 21% in Q3 and 25% in Q4. Specific to the second quarter of 2021, we are forecasting low single-digit revenue growth year-over-year as we lap 2020 stimulus tailwinds. In conclusion, we’re excited about the strength of each of our segments, and Dan laid out the terrific progress we’re making in each area. Combined with the growth-oriented investments we are making this year, we believe we’ll be on a solid footing to generate consistent operating leverage and earnings growth in the years to come. And even with these investments, we are still forecasting adjusted EBITDA growth in 2021. With that, operator, let’s open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Bob Napoli with William Blair. Please go ahead.

Thank you. And thanks for all the new information, the segment data, it’s very, very helpful. I really appreciate it, a lot going on there. I guess, and being limited to two questions, the – just to ask maybe about the Consumer segment, the growth was a lot stronger there than I would have thought. And you mentioned the GO2bank and the – I know there’s some stimulus in there, but what’s – the direct versus the in-store. What is going on? What has been outperforming? And what’s kind of the long-term view of that segment – the growth of that segment?

Hey, Bob. It’s Dan. Yes, I’ll start with that. And Jess, you might want to quantify some of my statements. But I think, Bob, what you have there is what we’ve tried to share and signal earlier is that with our new leader into our business, Brandon Thompson and Jamison Jaworski and others that they’ve hired, we’ve – really, over the last nine months, intensively focused on that retail business and to really do the right things there to reverse the declines that were present. And so that strong growth that you see is a combination of us kind of stopping the decline in the retail business and actually getting some moderate growth on retail, and then, on top of that, some really strong growth coming from GO2bank. That’s why you’re seeing such good numbers out of that consumer segment.

Okay. Very good. I guess it would be helpful to quantify some of that in the GO2bank. Let me just follow up with…

And Jess – I guess, from a standpoint where we think that’s going, I think we’re just seeing more to the same, because we’ve yet – step one is reverse the backwardness on the retail side, the step-backs and start moving forward. So I think we’re going to see increased growth in our traditional retail business and then continue to accelerate growth in the direct business. So we’re very, very bullish on our consumer side. I mean, as I tried to mention, when you think about just our Consumer segment alone, 4 million active accounts and close to 1 million direct deposit accounts. That’s more than most all of these high-flying neo banks out there in the market today. So super optimistic about what we’re doing there.

Thank you. And maybe just a follow-up on the expenses, the increase in the expenses. I appreciate the investment, but just trying to get a little color. The way you broke out the segments, you have a big corporate expense number that’s not in the segments, just trying to think about that. What’s exactly in there? The modern banking platform, it sounds like FIS’ platform that your migrating to. But the expenses as you move into 2022, are we going to see that operating leverage? So what’s in that big corporate expense number? And then what – are you going to get, I mean, a continued investment in 2022? Or are we going to see operating leverage in 2022?

Sure, Bob, I’ll take that one. On the corporate and other bucket, think of it as interest income earned by the bank. So there’s some amount of revenue. And then on the cost or profit side of that segment, think of it as truly our fixed sort of employee base. Think of it like a generic SG&A bucket. And when Dan and I have talked about in the past, keeping fixed costs fixed while growing the three core channels of Consumer, B2B and Money Movement, that’s where we start to really expand margins. And then as we talked about the investment in the core platform, specifically, that’s really targeting some of those variable costs that are within those segments. And that’s going to be something that will start to bear fruit in 2022.

Bob, I appreciate you fishing for FIS, but we’ve not finalized or decided on our core banking platform yet that we’re going to use.

Our next question will come from George Sutton with Craig-Hallum. Please go ahead.

Hey, guys. This is James on for George. So you mentioned account growth in GO2bank is outpacing other newer banks in the market. Curious sort of what you think a longer term account growth rate could look like. And in terms of some of the marketing investments you’re making. Can you maybe talk about where you’ve seen good ROI on those marketing dollars so far?

Sure. I won’t comment on the rate because I think that’s just kind of a hard target to nail down, but I can say that just – we’ve got a very experienced team that we brought on from folks I have worked with in the past, folks that were here when I showed up and also others from outside the industry. And one of the things that really helps us in our direct-to-consumer marketing, be it direct mail or search engine optimization, is we are a bank. And I’ve said that from the day I got here. And actually, some of the folks we’ve recruited in from the neo bank space have come here saying how powerful it is for us to be able to use the word bank in our marketing because we are a legitimate financial institution. Words like banks, savings account and others are things that other neo banks and challenger banks should not be allowed to use. And so just, again, we’re seeing really good, effective returns on investment dollars or marketing dollars that we’re spending in our traditional direct-to-consumer methods, and it gets fueled when we’re able to educate consumers that we really are a financial institution.

Great. And then outside of the gig economy, I guess, are there any particular verticals where the early wage access product is seeing interest?

In terms of just verticals, yes, I mean, the gig channel almost certainly is probably one of the most popular, if you will, for early wage access just because of the nature of a gig worker. I was – I can say, gig workers have been around for a long, long time. It’s just now that because of digital payments and also the technology of mobility, we’ve created a whole new segment. But back when I was a gig worker, and I cut somebody’s yard, I want to get paid that right then and there. And same thing with gig workers that are out there being – be it developers for hire or people who work in events, they want to get paid when the work is done. And so early wage access for that group and segment of employee is very, very popular. But really – the really big impact that early wage access is going to have is for traditional low to moderate income consumer in America, who is kind of living paycheck to paycheck and they get paid every two weeks. And early wage access really is going to allow the consumer who kind of runs out of money at the end of the month, it’s going to allow them to avoid payday loans and be able – with a small $200 to $300 early wage access, be able to get through their next pay period. So we really think that we tried to highlight in the script, inside of our Rapid PayCard business, there are 7 million employees inside of our 5,000 small businesses that we serve. And I believe that early wage access would be very beneficial from time to time to all 7 million employees.

Our next question will come from Ramsey El-Assal with Barclays. Please go ahead.

Hey, good afternoon, guys. It’s Damian on for Ramsey. Thanks for taking the question. Lots to go through here, thanks for sharing the revenue resegmentation. I guess what I’d love to hear a little bit more about is this GO2bank, obviously, high-profile launch. I don’t know if there’s any other KPIs that you can talk about. And I think last quarter, you talked about the direct deposit tax rate on those accounts. Or anything you can share about LTV to CAC or anything else you can kind of share on GO2bank, I would love to hear about it.

Damian, we’d love to give all of our critical metrics out to you, but we would not give those out. So really, I don’t mean to be evasive, but we really just have to speak generalities here. But yes, I’ve been through this before and many of the folks on my team, we’ve been through this before at our last company, and we really are just – things are kind of better than ever. Again, I think it’s a combination of being able to actually be a bank, use the word bank in our terminology, the solution set that we have going to market with and I think also just the overall general awareness in the country of a digital bank and what it is and what it means and what it gives me as the consumer also, as we said hundred times, fueled by COVID. So the metrics we shared is the metrics that we will continue to share on a go-forward basis, active accounts, strict deposit accounts. But all I can say is that we’re seeing really, really good promising uptake in terms of activation, promising uptakes in terms of usage and enthusiasm with our consumer-friendly overdraft product. It’s – the numbers are exceeding our internal expectations.

All right. Fair enough. I guess, then I’ll pivot here to the new revenue segment. So specifically on B2B here, obviously, last year, you saw some pretty impressive growth rates. I’m just wondering if you can kind of do – drill down there a little bit for us and help explain what was driving some of that triple-digit growth in 2020 and then maybe what your expectations are for that segment going forward. Thanks.

Sure. I believe that the revenue in that segment will continue to grow simply because we’ve got powerful, desired solutions embedded in the applications of partners like Apple and Intuit and QuickBooks that have millions and millions, if not tens of millions, of users. So I believe that, that revenue growth is going to continue. As we tried to illustrate and demonstrate is that the margins and the profit metrics on those contracts vary. And so we’re working to streamline those better and improve those to a degree to where our bottom line growth will better match our revenue growth inside of the BaaS and the B2B business. That being said as well is that, that is – that BaaS business particularly, that is our more long-term growth engine. So we’re going to be investing quite heavily in that business and most all be investing together with our partners in that business that create some really powerful embedded financial solutions that will also involve small credit solutions to consumers through our partners. So net-net, as I’ve said, over the last 12 months, first and foremost, we’re shoring up what we have. We’re focusing on our long-term traditional businesses and strengths. We’re investing in the near-term with GO2bank and consumer-friendly overdraft. And simultaneously, we’re building with our BaaS partners, a long-term phenomenal growth engine for this company.

Our next question will come from Andrew Jeffrey with Truist. Please go ahead.

Hi, good afternoon. Appreciate you taking the questions. Dan, can you talk a little bit about – I just want to understand sort of the long-term profitability of particularly your direct deposit accounts in the Consumer segment. I think it’s really helpful that those are all now being reported there. Can you talk about sort of relative profitability of those accounts, what you think the drivers are going to be? I get a lot of questions about the sustainability, for example, of the interchange model. And then how much overdraft do you think contributes to the long-term profitability of those accounts? It seems like that’s a really critical driver of that segment.

Hey, Andrew. Yes. I can talk to all that. Thank you. So we broke out the direct deposit accounts in the Consumer segment because one thing that we learned a long time ago at the last company is that when a customer takes this product and they sign up for direct deposit to have their paycheck or government benefits check directly deposited into this account, they’ve made this their primary bank account. And we know that those customers will stick with us for years. We certainly know that here inside of Green Dot because a number of three to five years ago, Green Dot bought portfolios from companies like AccountNow and RushCard. And with those portfolios, came direct deposit customers, and we still service many of those deposit customers today. So the longevity and stickiness of a direct deposit customer lasts for a long, long time. The profit economics on them are such to where between fees that we can earn off of interchange, ATM transactions, we add consumer-friendly overdraft to that. You – we can deliver a customer that would deliver to us a monthly contribution of somewhere between $15 and $20 a month. And so if you kind of round that up to $20, $24 a month, you get 1 million customers on direct deposit, you got $240 million worth of contribution. If we are able to successfully make the investments we’re talking about in this year, to be able to build efficiencies in our operations, get our own core banking system, get our own card management system, get a big variable cost and make that fix and keep our fixed cost fixed, as I mentioned, we’ve got close to 1 million customers on direct deposit today, our next 1 million customers on direct deposit, if we can keep our fixed cost fixed, that incremental $200 million, $240 million of contribution should fall to our bottom line.

Okay. And how do you think about driving those direct deposit actives? And what are the key levers you think that get you there? And what’s the TAM, Dan?

Yes. What’s the TAM, total available market?

Yes. I’m just trying to think about it would be great to get it million, how do you get there? And then what are the other markets there.

Yes. This goes back to kind of like – this is the type of business that I’ve always gravitated towards because I’m just not that good of a shot. So it’s the side of the barn sort of analogy, okay. The total available market is the 100 million-plus consumers in the U.S. who are living paycheck to paycheck, right. Give us 5% of $100 million, and we’ve got a multibillion-dollar business in terms of revenue just in this direct-to-consumer segment and profitability. The way we get there in terms of market is – and this also is part of the great benefit of us being a bank. First off, here is a bank account, right. It’s not a prepaid card. It’s a bank account. If you take this account and you sign up for direct deposit, you’ll have no fee on this account. We’ll give you up to $200 of free overdraft protection. We’ll have additional features here of a secured credit card to where you can build credit, other tools to where you can build your credit score, a pathway to traditional credit products, all wrapped up into this GO2bank account. We intend to offer other solutions such as investment tools that consumers can easily access, not to mention great customer service. Maybe even some buy now, pay later solutions are all in the road map. So it’s really – it’s a method of being able to take what has always traditionally kind of been, hey, here’s just a prepaid card for you, low-income consumer, so you can get your paycheck, to, here is a bank account issued and offered by the financial institution who has truly embraced the low-to-moderate income consumer, and we’re going to serve you and meet your needs.

Our next question will come from Andrew Schmidt with Citi. Please go ahead.

Hey Jess. Hey Jess. Thanks for all the detailed commentary. Let me echo others in saying the additional disclosure is extremely helpful. Thank you for that. I wanted to start off with a question on the profitability of the B2B segment. Could you just talk about kind of longer-term margins or incremental margins for the B2B segment, considering the Banking as a Service kind of contract structures as they stand today? And then how difficult is it to realign those structures? Kind of a two-part question that they play into each other. Thanks.

Yes. Sure, Andrew. I’ll take a shot at that. And Jess, you can add – chime in if I over – pass over anything. We’re not going to be able to change the significant contracts overnight. So we’ll probably, over the near-term, we may see kind of margins decline as revenues continue to grow on the fixed contracts that we have. I don’t believe the ability to restructure the contracts is anything that’s overly difficult. But it’s going to be something that it’s going to take a little time because we’ll probably restructure those when they come up for renewal. So we do intend to make those changes. And when we get there, we’ll certainly be sharing those with everyone. But when we restructure those contracts, it will have an impact predominantly on revenues but not a negative impact on the bottom line contribution of those contracts. But obviously – yes, obviously – yes, I think you can see, obviously, why we broke that out is because now by breaking this out, you can see how strong our consumer business really is and what we’re dealing with.

Understood. That’s very helpful. And then Dan, you threw out a number of products in your prepared remarks, whether it’s disbursements, lending products, overdraft, et cetera. It sounds like there’s a good road map there, which is great. What are the let’s call it – I know it’s probably hard to pick. What are the top couple of products that you think have the most revenue potential and get you the most excited, incremental?

I’d say incremental and kind of like line of sight in order, I would say, in order, overdraft disbursements and then lending, and simply because overdraft just launched. So we launched overdrafts with our GO2bank product when we launched in January. We’ve rolled that out now to our retail channels very recently, and we expect to have it into our other – all of our direct portfolios available by the end of this month. So overdraft is here and now. And so we know we’ve got the revenue coming on that. Disbursements, it’s launched inside of our Rapid. But it’s recently launched. And so now what we’ve got to do is make all the warm phone calls on our 5,000 small businesses and enroll the early wage disbursements out to those 5,000 small businesses and their 7 million employees. And then lending is on the road map. And so not yet launched. So that’s why I put that third.

Our next question will come from Steven Kwok with KBW. Please go ahead.

Hi guys, thanks for taking my questions. I guess, like as we look at the new segment disclosures, which segments do you think has the strongest opportunity for growth because it seems like that will dictate where the margins can go? And in addition, like, is there potential for more upside to some of the margins that we’re seeing today within each of the segments? And if so, like what’s the incremental margin on these businesses? And how should we think about that? Thanks.

Steven, I’ll let Jess try to take a part on the margin. I could just say in general, that yes, I see growth – there’s growth potential in everything we have, which is why I’m so excited about this. And I’m so glad we’ve broken everything out. There’s growth in our retail business, super strong growth potential in our direct business. Our tax business, we are engaged in some very exciting conversations with many of our partners about some new products to roll out to grow that tax business. So I’m looking forward to 2022 and tax to be meaningfully higher than 2021. And we’ve already talked about PayCard. PayCard even in the midst of COVID is growing. So I can’t wait until we, as a country, get out of COVID and let PayCard, really take off, especially add to what they’ve got potential with their early wage disbursement business. And then also, I don’t know, we – the Green Dot Network, as we tried to emphasize on this call is – we’ve breathed a tremendous amount of new life into the Green Dot Network. And evidenced by over 200 partners used that network. The numbers I saw today is like we, in the last 12 months, there’s been over $18 billion of cash digitized through the Green Dot Network through over something like 40 million transactions. That is a real hidden gem in terms of this move of everything going digital, there’s always going to be that small percentage of customers or transactions that have to be done in cash. We believe our Green Dot Network is going to become very, very valuable to most all the players in the industry. So with that, there’s growth coming across the board, we’re getting serious about fixing our fixed costs. We’re making improvements in our infrastructure to consolidate so many of our operating platforms we will see margin expansion, margin improvement in all lines of business.

I think you nailed it down.

Our next question will come from Mike Grondahl with Northland Securities. Please go ahead.

Hey thanks, guys. Is there any sort of high-level color you can give us – your 4 million accounts in consumer services, can you speak at all to how many you picked up with the stimulus dollars? Or even if you could give us sort of the zip code that GO2bank picked up in the quarter? And I think the reason people are really curious about it is, inversely, it speaks a little bit to the runoff in the legacy portfolio. So I don’t know if you can help us with that, that would be great. And then I have a follow-up.

Mike, is your question on GO2bank, how it benefited from stimulus?

No. In consumer services, did you pick up any – roughly how many accounts did you pick up because of the stimulus dollars? And then how many new accounts – GO#bank, even if you can just give us the zip code of new accounts, trying to back into kind of the legacy accounts and any runoff that could be happening there.

Yes. So Mike – yes, Jess and I have a bad Zoom connection, so we’re having our time giving each other hand signals as to who should take that question. So Jess, why don’t you – I’ve got a couple of points I definitely want to make, but why don’t you go first? And then if you don’t make the points I will add in.

Sure. Well, I think just on the former, Mike, which is around new customers. I think the way that EIP3 and really EIP2 was designed that these were folks – the deposits came on to accounts that were recipient for EIP1, right. So these are a lot of customers that are recurring customers within Green Dot’s ecosystem versus brand-new customers that are coming through and benefiting from stimulus, right. It’s – you received your tax deposit in 2020 on a Green Dot Card, you got EIP2 and you got EIP3 on that same card program. So a lot of it is existing customer base.

Yes. I mean that’s a very – that is the point. I mean the reality is that if you didn’t have an account set up with direct deposit, your EIP deposit didn’t hit that account. So I – it’s evidenced by 10% and 9% account acquisition in terms of active accounts direct deposit accounts juxtaposed against 21% revenue growth, I think it was 28% GDV growth, shows that I believe that we – that our account growth that we had, the great capital we had very little to do with stimulus.

Got it. Got it. And then GO2bank kind of the zip code of sort of new active accounts.

I just say from a zip code is that the majority of the growth we had in the Consumer segment came from GO2bank.

We’re trying to stay away from any individual one product, Mike, a lot of good growth is coming – well, I would say, both – you’ve got good growth coming from the pay as you go products that we launched in retail last year. You’ve got growth coming from GO2bank. You’ve got a good core sustaining base of direct depositors. And some of those programs that Dan mentioned as well, Rush, AccountNow, et cetera, so a lot of different areas you’re seeing growth.

Okay. And my follow-up was just at the retail level, is GO2bank sort of replacing the Green Dot brand? Or are you still utilizing the Green Dot brand at retail?

We’ll absolutely utilize the Green Dot brand at retail. It’s got tremendous consumer recognition and awareness. So we’re definitely maintaining the Green Dot brand at retail. And I do not see that the GO2bank will cannibalize that business because as we tried to stress before is that a customer, most typically, a customer when they purchase a card and retail, they’re more of a one-and-done customer who are picking up a product, a Green Dot product ideally, to solve a onetime payments need and hence, the launch of our pay as you go product, combined with our other Green Dot Everyday product. And that business is strong, and so we reenergized that business. The GO2bank product is designed for the customer who is looking for a better bank account or an alternative to a bank account. So we do not believe the GO2bank is cannibalizing the Green Dot products in any meaningful way.

This concludes our question-and-answer session. I would like to turn the conference back over to Dan Henry for any closing remarks.

Thank you very much, operator, and thank you all for this call. We really appreciate it. We are super excited about what we see very early on in 2021 as we are making investments to improve and strengthen and grow this business. We appreciate your trust as we journey along here. Thank you so much.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.