Challenger banks around the world are pushing on the growth button. It’s a way of keeping score of who’s winning and growing the fastest. Some of the larger challenger banks are adding upwards of 10,000 new customers per day. Though there are questions about what a customer is worth that merely signs up with a challenger and doesn’t make it his primary banking relationship, the numbers are certainly impressive.
But at the same time, Banking as a Service is challenging exactly what or who is a challenger bank.
Is CARD, which uses affinity marketing to distribute branded cards emblazoned with things like football teams and celebrities, a challenger bank? All its clients use the CARD platform to move money on and off their debit cards. But at the end of the day, their relationships are with the brand on the card, not really with CARD itself. Seen as a challenger bank, CARD has months where it signs up 150,000 new customers, which is 5X to 15X what some of the fastest challenger banks like N26, Chime, and Revolut are doing. See Tearsheet’s running analysis on challenger bank growth.
Which brings us back to Green Dot. Green Dot provides banking as a service functionality to firms like Walmart, Uber, and Apple. Green Dot may be the underlying bank but customer loyalty is to the overarching brand working with Green Dot.
As a pioneer in BaaS, Green Dot works with non-fintech companies to launch financial products. This enables Walmart customers and Uber drivers with the new Uber Money wallet to essentially bank with the brands they love.
Specifically, Green Dot signed three important ‘new deals’ (in all three cases, Green Dot had an existing relationship with the client):
Uber: At Money20/20, Uber formally announced its financial services team and products under the Uber Money brand. With this move, the on-demand transportation company essentially becomes a bank for its drivers. Green Dot powers this offering.
Before this upgrade, Uber drivers wages defaulted to their own existing bank account. “But now that the account is offered as part of the main enrollment flow, we expect to onboard more accounts on a run rate basis than we currently onboard,” said Steve Streit, Green Dot’s CEO during last week’s quarterly earnings call.
Uber also tapped Green Dot to expand the loyalty component of its debit card program, as well as a new integration with Green Dot’s retail cash processing network into the rider’s app.
Intuit: Intuit currently uses Green Dot TPG as its backend process over tax refund processing on Turbo Tax. Green Dot issues and manages the Intuit Turbo Card for tax refund disbursements.
“Intuit intends to integrate our best platform into their enterprise wide technology platform in order to facilitate a broader array of opportunities,” said Streit.
Walmart: Green Dot already powers the Walmart MoneyCard. The bank renewed that relationship while launching something entirely new. TailFin, a portmanteau of retail and fintech, is a joint venture between Walmart and Green Dot, that’s designed to serve as an accelerator to bring innovative, creative and compelling financial solutions to Walmart customers through all channels of commerce worldwide, according to Streit.
Walmart’s in charge here: The retailer controls the JV with 80 percent of the equity and Green Dot with 20 percent. Green Dot will contribute capital into the JV on an annual basis for the first five years so the JV can pay for R&D and build out whatever products or services are created.
Green Dot also runs its own DTC bank accounts, including a new Unlimited brand. Green Dot’s customer acquisition model is interesting. Streit estimates the challenger banks have incurred hundreds of millions of dollars of losses growing their users. Over time, “the Green Dot consumer business acquired around 20 million active paying customers at a single digit blended new acquisition costs and generated hundreds of millions of dollars in revenue in the process,” he said. “We believe that no competitor can match our overall customer acquisition costs or even come close.”
Coming back to challenger banks — brands like Walmart, Intuit and Uber have driven over 50 million end-users Green Dot’s way. That puts it an order of magnitude bigger than all the challenger banks (including Brazil’s Nubank which claims the title of largest challenger with 12 million accounts). Chime is the biggest US challenger bank with 5 million accounts.
“Green Dot is the number one app-based branchless bank in the world and the largest in the U.S. by more than a 5x lead, even without considering many of the BaaS related accounts which only increased the scale efficiencies as Green Dot realizes.”
Of course, Green Dot doesn’t necessarily fit the challenger bank definition. It has a banking license and has access to its own FDIC accounts to generate fee income. But it’s interesting nonetheless to see how business models and products are converging.
Hear from Green Dot’s Marmor, as well as executives from other leading Embedded Finance companies like Finix, MX, Synapse, Cambr, and Currency Cloud. Get tickets here.