Eye on Prepaid: Intuit’s GoPayment Card, Green Dot’s Bank

The prepaid card industry is marching to new frontiers as November heads toward a close. Intuit Inc. on Tuesday is expected to launch a prepaid Visa card for new merchants in its GoPayment smart-phone-based service, and the Federal Reserve Board approved prepaid card program manager Green Dot Corp.’s plan to buy a bank.

Mountain View, Calif.-based Intuit will make its new GoPayment Card, a reloadable card issued by The Bancorp Bank, its default settlement option for new GoPayment applicants, though applicants may choose to have funds settled into a conventional demand-deposit account. In offering the card, Intuit hopes to reduce the “friction” generated when applicants are asked to provide bank-account information during the underwriting process for a merchant account, according to Mary Lunneborg, GoPayment senior product manager.

“It’s been a barrier to signup today that people have to get a bank routing and account number,” she says. With the prepaid card, “it’s quicker to that first transaction.”

With GoPayment, merchants can accept credit and debit cards using Intuit software and a card swipe that attaches to their smart phone. Many GoPayment applicants do not have or want conventional business checking accounts, but they do want to keep their business dealings apart from household finances and the prepaid card helps them accomplish that, according to Lunneborg. “The money they make from GoPayment is separate from their personal finances,” she says.

Lunneborg believes the new card is the industry’s first to be used as the main settlement option for a merchant account. Intuit, however, is no stranger to prepaid cards. The company’s main business is its line of financial-management software for small-businesses and individuals, including QuickBooks for business accounting and TurboTax for preparing tax returns. Intuit offers a TurboTax card for receipt of tax refunds in addition to a card that accountants can offer to their tax-preparation clients, and also a payroll card. All are issued by Wilmington, Del.-based The Bancorp Bank.

Lunneborg said Intuit is pricing the GoPayment card as low as possible to attract users. There are no signup, activation, monthly maintenance, or purchase-transaction fees. The first ATM withdrawal per month is free; subsequent withdrawals cost $2.50, as do teller withdrawals. ATM balance inquiries and statements cost 50 cents. Adding money through direct deposit, transfers from a bank account, or cash reloads at Green Dot’s retail locations is free. The first automated clearing house money transfer per month to the holder’s bank account is free; subsequent ACH transfers cost $1.00.

Prepaid card industry researcher Ben Jackson, a senior analyst at Mercator Advisory Group Inc., agrees that many GoPayment merchants that want to keep their business and personal finances separate might find the card attractive. “It makes it very easy for them,” he says.

But a business trying to use funds in a prepaid card account to pay a vendor that doesn’t accept cards might encounter some hurdles, according to Jackson. Lunneborg says that GoPayment cardholders today will need to transfer the money to another demand-deposit account, and pay businesses that don’t take credit cards through that other account. Lunneborg adds, without giving details, that Intuit is working on more options to make such payments easier. “That’s a problem we’re definitely looking to solve,” she says. “It’s definitely on our radar.”

 Intuit’s new prepaid card takes the stage as competition intensifies among merchant acquirers for part-time sellers and established small businesses that use mobile devices to process payments. Two-year-old Square Inc., headed by Twitter co-founder Jack Dorsey, is getting plenty of press and recently claimed to be processing up to $11 million per day. That would make Square’s annual volume about $4 billion, short of the $5 billion in annualized charges for GoPayment, according to the figure Intuit chief executive Brad D. Smith gave during Intuit’s quarterly earnings conference call Nov. 17. (Smith also said 70% of GoPayment’s customer’s are new to Intuit.) While Square and Intuit are getting most of the headlines, a number of independent sales organizations or software companies working with ISOs also have payment services for mobile merchants.

Meanwhile, the Federal Reserve last week approved Green Dot’s application to buy Bonneville Bancorp, a small, Provo, Utah-based holding company that owns Bonneville Bank, and simultaneously become a bank holding company. The sale marks the first time in which one of the nation’s major non-bank prepaid card program managers has acquired a bank to complement its business of managing and processing prepaid cards.

Green Dot, which offers prepaid cards for Wal-Mart Stores Inc. and other major retailers, plans to rename the bank Green Dot Bank and use it to diversify its current roster of issuers led by General Electric Co.’s GE Money Bank and Synovus Financial Corp.’s Columbus Bank & Trust.

Green Dot signed a definitive agreement to buy Bonneville in February 2010, pending regulatory approvals. Four Fed governors voted to approve Green Dot’s application, saying the company presented an acceptable risk-control plan and had the needed capital. But Gov. Elizabeth A. Duke voted no, citing Green Dot’s narrow focus on the prepaid card industry and heavy reliance on one customer (Wal-Mart, which the governors did not cite by name), as vulnerabilities. She also had objections to specific parts of Green Dot’s business plan for the bank.

With only $35.7 million in assets as of June 30, Bonneville Bank is too small to take over all of Green Dot’s issuing duties any time soon. But owning the bank will enable Green Dot to capture more of the interchange revenues that it splits with its bank partners and reduce uncertainty regarding bank-sponsorship contract renewals, according to analysis of the deal by Goldman Sachs & Co.

The Utah Department of Financial Institutions also signed off on the acquisition.