Green Dot might lose its contract with Walmart, which is causing a lot of buzz regarding the future of the company’s namesake prepaid card.
At the end of its current contract with Green Dot, Walmart is expected to either not renew or vastly restructure the arrangement to cut Green Dot’s commission rate. Either outcome, Seeking Alpha reported, is likely to be quite damaging to Green Dot, which in 2013 relied on Walmart for 64 percent of its total operating revenues and more than 82 percent of its total units sold. (Green Dot, it should be noted, forecasted this statistic as being lower in a January 2015 earnings call — but CEO Steven W. Streit did not have a precise number handy.)
“Nobody matches the scale and the sheer volume of folks, especially if your target is low- and moderate-income Americans than Walmart,” Streit said on the call. “So we would always fight tooth and nail and do anything ever that we could to please Walmart and to ensure to them that we were their best partner and their best selection. Because it’s a lot of revenue, it’s still a very big program and it’s part of our scale.”
Streit went on to say that Walmart was not viewed by many as a “high-margin account,” but, he said, they do make a “wonderful partner.”
While Green Dot recently secured a one-year extension with Walmart into 2016, according to Seeking Alpha, its analysis suggests that may be too late, as that could likely come at the cost of having to reduce its commission rate to 50 percent lower than the industry standard.
Regardless, Seeking Alpha believes that the most likely outcome for Green Dot will be a complete dissolution of its contract with the retail giant, pointing to the fact that there were difficulties in reaching even the recent agreement. A secondary possibility, posits the report, is that Walmart may choose to enter into a contract with one of Green Dot’s competitors in the prepaid card market, such as American Express, while keeping Green Dot as a partner (Walgreens took a similar action in 2012, hurting Green Dot’s bottom line in the process).
It appears that the best case scenario for Green Dot would be to maintain its invaluable partnership with Walmart beyond 2015 by massively cutting its rate by at least half. And even this best case wouldn’t be very good for Green Dot.