Green Dot will not be known as just a provider of prepaid cards anymore as it has just been given the go ahead to buy a community bank.

Green Dot Corp. (NYSE: GDOT), the largest player in the prepaid card industry, has been approved by the Federal Reserve to form a bank holding company through the acquisition of a small community bank in Utah.

Provo, Utah-based Bonneville Bancorp and its subsidiary, Bonneville Bank, have total assets of roughly $35.7 million and deposits of approximately $29.6 million, which will join with the $322 million in consolidated assets of Green Dot.

Green Dot is known for offering general-purpose reloadable prepaid debit cards obtained online or through major retailers. These prepaid cards function similar to regular debit cards but cater towards the unbanked and underbanked American population. Lately, prepaid cards have drawn the attention of industry watchers due to increasing popularity.

Currently, the prepaid cards are issued through Synovus Bank. Green Dot will change Bonneville Bank’s name to Green Dot Bank (to be a subsidiary of Green Dot Bancorp), which would allow the company to break ties with Synovus Bank to issue its prepaid cards under its own bank.

Industry Under Transformation

Elizabeth Duke, a Fed governor, opposed the approval citing concerns over a business model that specialized in one or a few products.

“Companies with narrow business plans face risks that are different than those faced by more diversified companies and are more vulnerable to unexpected shocks,” Duke said in a statement.

“Green Dot currently relies on a single retail partner for a large majority of its revenues, and a loss of the relationship would have a materially adverse impact on Green Dot’s revenues,” she added. Retailers that sell Green Dot’s prepaid cards and reload packs include CVS, Kmart, Rite Aid, 7-Eleven, and Walgreens.

Prepaid cards are showing up to form a lucrative market as they are exempt from the recent debit card swipe fee rules that have left big banks scrambling for revenue.

They could become a more common piece of plastic if prepaid card companies, which then acquire banks, are able to offer more creative ways to attract customers.

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