CAMBRIAN GROUP

strategic report

CAMBRIAN GROUP

Green Dot

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TEAM MEMBERS

Zachary Mattler, Lead

Alec Larson

Ying Zeng

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TABLE OF CONTENTS EXECUTIVE SUMMARY�…�…�…�…�…�…�…�…�…...............................�…�….�…�…�…�…�…�…�…�…..�….1

PART I: INTRODUCTION COMPANY OVERVIEW�…�…�…�…�…�…�…�….�…�…�….�…�…�…�…�…�…�…�…�…�….�…�…�…�…�…..�…..�…..4 Business Overview............�…�…�…�…�…�…�….�…�…�….�…�…�…�…�…�…�…�…�…�…�…�….�…�…4

Company History..�…�…�…�…�…�…�…�…�…�….�…�…�…�….�…�…�…�…�…�…�…�…�…�…�…�…�…...5

PART II: ANALYSIS COMPETITIVE ANALYSIS�…�…�…�…�…�….�…�…�…�…�…�…�…�….�…�…�…�….�…�…�…�…�…�…�…�…�…�…�….8 Internal Rivalry�…�…�…..�…..�…�…�…�…�…�…�…�….�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�….8

Buyer Power...�…�…�…�…�….�…......�…�…�…�…�….�….�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…..9

Supplier Power.�…�…�…�…�…�…�…�…�…�…�…�…�…�….�…�…�…�…�…�….....�…�…�…�…�…�…�…10

Barriers to Entry....�…..�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�….�…�…�…�…�…�…..10

Substitutes & Complements............................�…�…�…�…�…�…�…�…�….�…�…�…�…�…�….11

SWOT ANALYSIS..�…�…�…�…�…�…�…�…�…�…..�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…..11 Strengths�…�…�…�…�…�…�…�…�…�…�…..�…�…�….�…�…�…�…�…�…�…�…�…�….�…�…�…�…�…�…..11

Weaknesses�…�…�…�…�…�…�…�…�…�…�…�…�….�…�…�…�…�…�…�…�…�…�…�….......................12

Opportunities�…�…�…..�…�…�…�…�…�…�…�…�….�…�…�…�…�…�…�…�…�…�…..�…�…�…�…�…�…..13

Threats�…�…�…�…�…�…�…�…�…�…�…�…�…�…�….�…�…�…�…�…�…�…�…�…�…...........................13

FINANCIAL ANALYSIS�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…�….14 Stock Performance..............�…�…�…�…�…�….�…�…�…..�….�…�…�…�…�…�…�…�…�…�…�…�…..14

Profitability..........................�…�…�…�…�…�….�…�…�….�…�…�…�…�…�…�…�…�…..................15

Liquidity.................�…�…�…�…�…�…�…�…�…�….�…�…�…..�…�…�…�…�…�…�…..�…�…�…�…�…�…16

Solvency...................................................................�…�…�…�…�…�…....................�…�…16

Industry Comparison.................................................�…�…�…�…�…�…....................�…17

PART III: RECOMMENDATIONS STRATEGIC RECOMMENDATIONS�…�…�…�…�…�…�…�…�…�…�…�….�…�…�…�…�…�…�…�…�…�…�…�….19

Overview.................................�…�…�…�…�…�…..�…�…�…�…�…�…�…�…�…�…�…�…�…�…�….....19

Near-Term...............................................�…�….�…�…�…�…�…�…�…�…�…�…�…�…�…�…�…...19

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Mid to Long-Term...........................�…�…�…�….�…�…�…�…�…�…�…�…..�…�…�…�…�…�…�….22

SOURCES......�…�…�…�…�…�…�…�…�…�…�…�…�…..............................�…�…�…�…�…�…�…�….�…�…�…...24

APPENDICES�…�…�…�…�…�…�…�…�…�…�…�…�…..............................�…�…�…�…�…�…�…�…�….�…�…�….25

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EXECUTIVE SUMMARY Green Dot (NYSE: GDOT) is an alternative financial services provider that issues general-purpose reloadable (GPR) prepaid debit cards to United States citizens. GPR prepaid cards are like normal debit and credit cards, except that they are not linked to a checking account or a line of credit. Instead, companies in the GPR prepaid space issue cards through bank partners and customers load money onto their cards either at the checkout counters of certified retailers or by using reload products.

Green Dot�’s product line consists of Visa and MasterCard-branded GPR prepaid debit cards and a reload product called MoneyPak. Consumers can purchase these products or load money onto Green Dot cards at 55,000 retail locations nationwide. Unbanked, underbanked, and banked consumers with annual household incomes below $75,000 comprise the Company�’s target demographic.

Green Dot earns revenue through cardholder fees and interchange fees that it collects from merchants. In recent years, approximately 64% of its operating revenues have been attributable to sales at Walmart stores. However, Green Dot risks losing this important revenue stream when its contract with Walmart expires in 2015.

The Cambrian Group recommends for Green Dot to implement new market penetration strategies in the near-term that prioritize capturing new customers from the underbanked and unbanked segments of its target demographic. Green Dot has significant potential to increase its revenues by better targeting these customer segments. After capturing more customers from the said demographic groups, Green Dot should implement The Cambrian Group�’s strategies for capturing more banked consumers. Below is a summary of the techniques that Green Dot should follow to achieve these goals:

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1. Green Dot should seek to capture more unbanked and underbanked consumers in the near-term through:

�• Customer segment-specific advertising campaigns

�• Promotions with existing retail partners

�• Waiving maintenance fees for loyal customers

�• Maintaining its brand image as an alternative financial services provider even if it becomes a bank holding company through its pending bank acquisition

2. Green Dot should strive to capture more banked consumers in the mid to long-term through:

�• Customer segment-specific advertising campaigns

�• Aligning with �“more upscale�” retail partners

�• Maintaining its brand image as an alternative financial services provider even if it becomes a bank holding company through its pending bank acquisition

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PART I INTRODUCTION

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COMPANY OVERVIEW Green Dot Corporation (NYSE: GDOT, �“the Company�”) is an issuer of general-purpose reloadable (GPR) Visa and MasterCard-branded prepaid debit cards. GPR cards are like normal debit and credit cards, except that they are not backed by a checking account or a line of credit. Instead, companies in the GPR prepaid space issue cards through bank partners. GPR prepaid cardholders load money onto their cards at the checkout counters of certified retailers or by using reload products such as Green Dot�’s MoneyPak product, which customers can also use to add money to PayPal accounts.

Green Dot cards cost $4.95 to purchase, and cardholders pay a $5.95 monthly user fee unless they make at least thirty purchases or load $1,000 on their cards each month. Green Dot issues Walmart�’s private-label GPR prepaid card called MoneyCard in addition to its namesake products. It sells its products through third-party retailers and its cards and reload services are available at over 55,000 retail locations nationwide. Its cards are only available to United States citizens, and customers must submit a valid social security number and mailing address in order to activate a card.

A typical Green Dot cardholder is an American male between twenty-five and forty-five years old who earns an annual income of $38,000. Green Dot�’s target customer segments are: unbanked, underbanked, and banked consumers from households with annual incomes below $75,000. Unbanked consumers are people who do not own bank accounts; many of them have never owned one. Underbanked consumers are people who have poor access to traditional banking products and instead rely on alternative financial services like check cashing. Banked consumers are people who own bank accounts. There are 160 million adults in the United States that fall into the three customer segments that Green Dot targets. Figure 1 illustrates the breakdown.

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Figure 1: Relative Sizes of Green Dot�’s Customer Segments

Source: J.P. Morgan

Half of Green Dot�’s current customer base is from the banked segment and the other half is split between unbanked and underbanked consumers. Its products are less popular with unbanked than banked consumers because unbanked consumers tend to be highly skeptical of both banks and alternative financial services providers.

History

Steve Strait, CEO, founded the southern California-based company in 1999 under the name �“New Estate Communications�”. His vision was to create a business that would provide Visa and MasterCard debit cards to people who otherwise could not obtain a card from a commercial bank. The Company sold its first card in 2000. By 2003, its products became available in over 18,000 stores nationwide. In 2005, the Company changed its name to Green Dot and pioneered the first cash-accepting network for reloading debit cards.

In 2007, Green Dot began managing a co-branded GPR card program for Walmart and providing reload network services at Walmart stores. In the same year, a consortium of venture capital firms led by Sequoia Capital

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invested $20 million in the Company. In 2009, Green Dot entered a five-year contract with PayPal that allows PayPal users to use Green Dot�’s MoneyPak product to load money onto their PayPal accounts.

Today, consumers can purchase Green Dot cards at 55,000 retail locations nationwide. Figure 2 list Green Dot�’s key retail partners.

Figure 2: Green Dot�’s Retail Partners

Retail Vertical Retailer

Pharmacy Walgreens, CVS, Rite Aid, Duane Reade

Grocery Kroger, HEB, Food 4 Less, Ralph's Winn-Dixie

Convenience 7-Eleven, Sunoco, Valero, Hess, Circle K

Discount Walmart, Kmart, Meijer

Other Radio Shack, Conistar

Source: J.P. Morgan

In February 2010, Green Dot entered into a definitive agreement to acquire Utah-based Bonneville Bancorp, a bank holding company, and its subsidiary commercial bank, Bonneville Bank. Green Dot will become a bank holding company upon consummation of the acquisition, but federal and state regulators have not yet approved the transaction. If approved and completed, the transaction will position Green Dot as a direct issuer of cards. Also, becoming a bank holding company will enable Green Dot to offer bank products, such as checking and savings accounts, to consumers.

Green Dot had its initial public offering of stock in July 2010. The Company raised $164 million through the transaction, and now its shares are listed under the ticker �“GDOT�” on the New York Stock Exchange.

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PART II ANALYSIS

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COMPETITIVE ANALYSIS Forces Strategic Significance

Internal Rivalry Low to Moderate

Buyer Bargaining Power Low

Supplier Bargaining Power Moderate to High

Entry Low to Moderate

Substitutes and Complements Moderate

Internal Rivalry

Green Dot faces competition in a variety of forms because several different types of companies issue GPR prepaid debit cards. Figure 3 lists some of Green Dot�’s competitors in the GPR prepaid space.

Figure 3: Representative Players in the GPR prepaid card space

Company Type Sample Companies

Specialized prepaid debit card companies

NetSpend, UniRush, BuyRIGHT

Gift card networks Blackhawk

Alternative financial services providers

PreCash, Western Union, AccountNow

Banks H&R Block, Capital One

Source: J.P. Morgan

With approximately 3.5 million active accounts as of 12/31/2010 and nearly $10.3 billion in gross dollar volume load in 2010, Green Dot is the leading player in the industry. NetSpend, the second largest player, has fewer active

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accounts (~2.1 million as of 12/31/2010), but had a greater gross dollar volume load in 2010 (~$11 billion). No other issuer has more than 1 million active accounts.

Issuers use a variety of strategies to gain market share. Many issuers capture new consumers by cross-selling their products into their retail partners�’ customer bases. This strategy is most successful in cases where the two companies�’ target demographic groups overlap. Another major strategy that many of these companies have implemented is increasing the sizes of their distribution networks through strategic partnerships with third-party retailers and distributors. Green Dot and NetSpend have both successful done this. Green Dot aligns with retailers such as Walmart and Radio Shack and NetSpend partners with alternative financial service providers.

Green Dot faces price competition from other issuers who offer low-fee cards to consumers. For example, H&R Block�’s Emerald Card has significantly fewer and lower fees�—no activation, monthly, or purchase fees�—but it is only available online and through H&R Block�’s tax preparation services. Similarly, Western Union�’s MoneyWise card does not charge a monthly maintenance fee. In comparison, Green Dot cardholders can qualify for fee waivers if they conduct more than 30 transactions per month or load at least $1,000 onto their cards per month.

Green Dot and NetSpend�’s fee structures suggest that price is not necessarily the key driver of customer choice in the GPR prepaid card space. Non-price factors such as: availability, ease of reload, brand awareness and marketing, and customer service seem to have the greatest influence on customer choice in the GPR prepaid space.

Buyer Bargaining Power

Although Green Dot charges some of the highest activation and maintenance fees in the industry, it possesses some significant comparative advantages over its competitors (mentioned in previous section) that enable it compete primarily on non-price factors. Thus, Green Dot customers have low bargaining power because of the many non-price benefits of owning a Green Dot card.

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Supplier Bargaining Power

Suppliers in the GPR prepaid card space are the retailers that sell GPR prepaid cards in their stores. In many cases, these retailers possess moderate to high levels of bargaining power. Green Dot�’s relationship with Walmart is a great example of supplier bargaining power in the industry. Green Dot signed a contract with Walmart in 2006 that establishes it as the exclusive issuer of GPR prepaid cards that are sold in Walmart stores. The contract also grants Green Dot rights to be the the issuer of Walmart�’s private-label MoneyCard. Since entering the contract with Green Dot, Walmart has become the leading seller of GPR prepaid cards in the United States. Green Dot has been benefitting from the relationship, too: 64% of its revenue in FY 2010 was attributable to sales at Walmart stores. A provision of the contract is that Green Dot must pay Walmart a sales commission based on a matrix of factors including new card sales, consumer pricing, cardholder usage, and retention. The original commission rate was originally 22%, but was reduced to about 7% in 2009. In 2010, Walmart increased the commission rate to 14%.

Clearly, Walmart has a very high level of bargaining power in its relationship with Green Dot. In addition to exercising control over its commission rate, it has the option to not renew Green Dot�’s contract when it expires in May 2015. However, since Walmart owns 5% of Green Dot�’s equity, it has an incentive to help Green Dot remain profitable. Overall, the supplier-issuer dynamic between Walmart and Green Dot demonstrates that suppliers have the upper hand in their relationships with issuers of GPR prepaid cards.

Entry

Barriers to entry in the GPR prepaid card space are high because issuers need have scale economies and large distribution channels in order to be profitable. Issuers earn revenue through cardholder and merchant fees, which tend to be fairly low. Thus, it is critical for issuers to have lots of active accounts. It would be very difficult for a newcomer to capture market share if it had to compete against well-established players like Green Dot and NetSpend that each have millions of active accounts and benefit from scale economies. Another factor that potential entrants must consider is

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developing distribution network. It is unlikely that a new entrant would be able to compete with issuers like Green Dot that already have huge distribution networks.

Substitutes and Complements

Traditional checking accounts at commercial banks are the main substitutes to GPR prepaid cards. However, GPR prepaid debit cards are less expensive to maintain, and arguably more convenient to use than traditional bank accounts. This is why issuers of GPR prepaid cards target their products to mostly low to middle-income consumers who are often unbanked or underbanked.

The Cambrian Group�’s research found that Green Dot�’s GPR prepaid cards lack a concrete complement.

SWOT ANALYSIS Strengths

Brand Image: Green Dot has a strong brand image as a result of being a pioneer of the GPR prepaid card industry and operating the largest reload network in the United States. Also, its partnership with Walmart and connection to Sequioa Capital are signals that it is a high-quality business.

Vertically Integrated Business Model: Green Dot operates a vertically integrated business model by internally managing its bank issuing, card processing, distribution, and its reload network. These features of Green Dot�’s vertically integrated business model allow it to innovate and launch products rapidly, integrate new network participants quickly, mitigate risk (vendor, regulatory and legislative), and reduce costs.

Low Capital Intensity: Since Visa and MasterCard produce Green Dot cards, the Company has minimal working capital requirements. In 2010, capital expenditures were 3% of revenue. Consequently, the Company has a lot of cash on its balance sheet that it can use for current and future projects.

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Positive Effects of Recent Financial Reform: Recent financial legislation such as the Dodd-Frank Bill and the CARD Act could increase consumer bank fees and make low-end consumer credit less available in the future. These pieces of legislation contain provisions that place restrictions on the methods that commercial banks can use to earn revenue. For instance, the Dodd-Frank Bill calls for greater interchange fee regulation, which might result in banks being forced to reduce the interchange fees that they charge merchants. In order to recoup lost fee income, they might raise consumer fees in other areas, such as maintenance fees on checking accounts and annual fees for debit cards. In turn, it is likely that people who are unwilling to pay these new fees will fall out of the traditional banking system and become attracted to alternative financial products like Green Dot cards. Thus, bank reform might increase the size of Green Dot�’s target customer base.

Distribution Network: Green Dot products and reload services are

available at 55,000 retail locations nationwide. In addition to being available at many retail locations, Green Dot sells its products at stores that attract members of its three customer segments: underbanked, unbanked, and banked consumers from households earning annual salaries below $75,000. Walmart is Green Dot�’s most valuable retail partner because 64% of Green Dot�’s revenues in FY 2010 came from sales at Walmart stores.

Weaknesses

Weak Penetration of Key Customer Segments: A 2009 Federal Deposit Insurance Commission survey found that only 16% of underbanked consumers and 12% of unbanked consumers have ever tried a GPR prepaid card. This indicates that Green Dot is not doing enough to market its products to consumers in these key customer segments.

Potential Negative Effects of Pending Bank Acquisition: If completed, Green Dot will become a bank holding company through its pending acquisition of Bonneville Bancorp. Consequently, it will be subject to greater regulatory scrutiny. Also, it is possible that it will lose customers from all of its target segments if it uses its new legal status to start to resemble a commercial bank by offering products such as checking and savings accounts. Underbanked and unbanked customers who are skeptical

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of traditional banks might lose trust in the Company, and banked customers will probably prefer to keep their accounts with better-established commercial banks.

Opportunities

Align with New Retail Partners: Green Dot might be able to capture more banked consumers if it starts to sell its products at retailers like Vons and Best Buy that are more upscale than many of its existing ones, such as Food4Less and Walmart. Part of this strategy could involve a new advertising campaign directed toward banked consumers that articulates the benefits of owning GPR prepaid cards as complements to traditional debit and credit cards.

Pending Bank Acquisition: If completed, Green Dot�’s pending acquisition of Bonneville Bancorp will enable it to become a direct issuer of debit cards.

Threats

Expiration of Contract with Walmart in 2015: Green Dot�’s contract with

Walmart expires in 2015. Green Dot will suffer if Walmart does not renew the contract because almost two-thirds of Green Dot�’s revenues in recent years have been attributable to sales at Walmart stores.

Interchange Fees: Some of Green Dot�’s retailer partners might demand that Green Dot reduce its interchange fees in the future, which would make the Company less profitable. Green Dot has already experienced a similar threat with the fluctuating sales commission rates that Walmart charges the Company (as discussed in the �“Supplier Bargaining Power�” section of the 5 Forces Analysis).

Competition from Commercial Banks: Green Dot should be wary of commercial banks interested in entering the prepaid card business. Many commercial banks are concerned about falling service fee income as the federal government starts to enforce stricter bank regulations, particularly surrounding NSF fees. To recoup lost fee income, banks could begin marketing prepaid cards to certain segments of their customer bases. These potential entrants face low barriers to entry due to their existing retail locations and customer bases.

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Regulation: Green Dot might have to adhere to stricter regulations that reduce its revenues if regulators impose new restrictions on issuers of GPR prepaid cards in the future. Also, the recently established Consumer Financial Protection Bureau plans to closely watch over the sector.

FINANCIAL ANALYSIS Stock Performance

Green Dot became a publicly-traded corporation listed in the New York Stock Exchange through its initial public offering (IPO) of stock in July 2010. Green Dot went public in order to gain liquidity for some of its prominent investors like Sequoia Capital and Walmart, not in order to raise money. The IPO raised $164 million, and existing investors and owners sold all of the shares in the transaction.

Figure 4: Green Dot (GDOT), NetSpend (NTSP), and Russell 2000 index fund (^RUT) stock returns from 10/20/2010 to Present

Source: Yahoo! Finance

As Figure 4 displays, Green Dot�’s stock has not performed very well over the past seven months.

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However, this does not necessarily indicate that the Company is performing badly. Returns of small capitalization stocks like Green Dot tend to be very volatile, especially as these companies grow. This volatility is reflected in Green Dot�’s current price-to-earnings (P/E) ratio of 80.36, which indicates that investors are willing to pay $80.36 for one dollar of the Company�’s earnings. This suggests that invests expect Green Dot to grow and become more profitable in the future.

Green Dot�’s stock returns were above NetSpend�’s throughout most of the period illustrated in Figure 4. However, both stocks performed beneath the Russell 2000 index fund, which tracks a multi-industry basket of small capitalization stocks.

Profitability

Green Dot has been profitable throughout its history. In recent years, much of its profitability has been attributable to its revenue growth. Between 2009 and 2010, its operating revenues rose almost 55% to $363.9 million. It earns these revenues through cardholder fees, cash transfer fees, and interchange fees. Figure 5 shows the breakdown of its operating revenues in 2010.

Figure 5: 2010 Operating Revenue Breakdown

Source: Green Dot 2010 10-K

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Figure 5 shows that Green Dot makes most of its money through collecting cardholder fees (�“card revenue�”) such as activation, monthly maintenance, and reload fees. The rest of its revenues are about evenly split between cash transfer revenue and interchange revenue.

Green Dot incurred greater costs in 2010 than it had in the past as a result of its IPO. Between 2009 and 2010: its sales and marketing expenses rose almost 60%, its compensation expenses rose 75%, its processing costs rose 76%, and its administrative expenses rose over 94% . All of these cost increases are attributable to its IPO. In general, IPOs are very expensive because they require the assistance of an underwriting firm, in addition to demanding substantial accounting, legal, and marketing costs. Aside from costs related to its IPO, Green Dot incurred higher sales costs and expenses related to a television advertising campaign in 2010.

Green Dot�’s profitability ratios decreased between 2009 and 2010 even though its net income rose 13.6% in the same period. From 2009 to 2010, Green Dot�’s return on assets (ROA) dropped from 20.3% to 14.8% and its return on equity (ROE) fell from 52.0% to 25.57%. These ratios declined because the asset and equity balances on Green Dot�’s balance sheet grew significantly as a result of its IPO. However, its 2010 ROA and ROE numbers are still ahead of NetSpend�’s, which were 9.0% and 15.1%, respectively.

Liquidity

Green Dot�’s IPO almost doubled the amount of cash and cash equivalents on its 2010 versus its 2009 balance sheet. In turn, Green Dot�’s current ratio rose from 1.4 to 2.2, indicating its ability to pay off its short-term liabilities with its current assets. Similarly, Green Dot�’s quick ratio climbed from 0.9 to 1.8 between 2009 and 2010. This demonstrates the Company�’s ability to pay off its current liabilities with its cash and accounts receivable.

Solvency

Currently, Green Dot does not face solvency problems because it has no debt or other long-term liabilities on its balance sheet. However, it could

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encounter solvency issues in the future if it issues debt or incurs other long-term liabilities.

Industry Comparison

Figure 6: 2010 Financial Comparison of Green Dot and NetSpend

GDOT NTSP

Market Capitalization 1.76B 869.34M

Enterprise Value 1.66B 823.39M

Quarterly Revenue Growth (yoy) 19.40% 18.20%

Revenue (ttm) 377.26M 275.39M

Gross Margin (ttm) 84.90% 32.89%

EBITDA (ttm) 73.52M 58.30M

Operating Margin (ttm) 18.48% 16.55%

Net Income (ttm) 27.57M 23.26M

EPS (ttm) 0.52 0.27

P/E (ttm) 80.36 36.63

Source: Yahoo! Finance

The financial statistics in Figure 6 indicate that Green Dot financially outperformed NetSpend in 2010. (NetSpend is its only formidable competitor in the GPR prepaid space.)

The quarterly revenue growth, gross margin, and operating margin statistics are the best indicators of Green Dot�’s superior financial performance. Also, the difference in the companies�’ P/E ratios suggests that investors think that Green Dot stock is more valuable and has better growth prospects than NetSpend�’s.

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PART III RECOMMENDATIONS

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STRATEGIC RECOMMENDATIONS Overview

Green Dot�’s success as a business hinges on its abilities to capture new customers and to retain existing ones. Thus, it can become more profitable in the future by increasing the size of its customer base. Green Dot�’s current market penetration strategy exerts the same amount of effort toward targeting consumers in each of its three customer segments: unbanked, underbanked, and banked. This one-size-fits-all approach is flawed because Green Dot has greater potential to capture new underbanked and unbanked consumers than banked consumers. This is because unbanked and underbanked consumers have greater demands for

alternative financial products like GPR prepaid debit cards than banked consumers who already own bank accounts. Accordingly, Green Dot should focus on capturing more underbanked and unbanked consumers in the near-term. After it accomplishes this, Green Dot should follow The Cambrian Group�’s strategies for capturing more banked consumers in the mid to long-term.

Near-Term Strategic Recommendations

The Cambrian Group recommends for Green Dot to make capturing new unbanked and underbanked consumers its top strategic priority in the near-term. Green Dot should implement the following measures in order to achieve this goal:

Customer Segment-specific Advertising Campaigns: According to a 2009

Federal Deposit Insurance Commission survey, convenience is the most frequently cited reason why underbanked consumers use alternative financial services such as check cashing, non-bank money orders, and payday-lending services. This suggests that they dislike interacting with bank tellers and customer service representatives, going to ATMs, and worrying about overdraft fees and the other hassles of maintaining a bank account. Unbanked consumers dislike banks even more than their underbanked counterparts, namely because they are unfamiliar with and therefore very skeptical of the banking system. Both groups�’ distaste for

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banks makes them ideal Green Dot customers. However, most of the sales pitches and graphic advertisements that Green Dot currently uses to target these consumers are too text-heavy and include bank jargon like �“overdraft fees�” that might make potential customers from these segments uncomfortable.

Green Dot should consider revamping its advertising efforts to better address the concerns and interests of underbanked and unbanked consumers. Its future advertisements should explicitly express that Green Dot cards are more convenient alternatives to checking accounts and other commercial bank products. These advertisements should point out convenient features of Green Dot cards such as the option to load cash via direct deposit and the option to pay bills online through Green Dot�’s partnership with PayPal. Also, since many unbanked and underbanked consumers are non-native English speakers and are unfamiliar with financial concepts, Green Dot�’s future advertisements should include as little text as necessary and not include any financial jargon.

It is likely the advertising-related recommendations explained above will have a greater influence on underbanked than unbanked consumers, since the second group is extremely skeptical of banks and anything that its members might associate with one, like a GPR prepaid card. Smart advertising strategies may not be able to change unbanked consumers�’ attitudes about the financial services industry in which Green Dot operates.

Promotions with its Existing Retail Partners: Green Dot should consider expanding the scope of its current promotional programs to spread product awareness, and thus capture more customers. Since many unbanked and underbanked consumers are skeptical of banks and financial service providers similar them (like Green Dot), they might be opposed to spending money on a GPR prepaid card. To address this problem, Green Dot should consider initiating a widespread, temporary promotional program whereby patrons of one or more of its retail partners are awarded prepaid Green Dot cards for nominal amounts, without user fees attached, if they spend over a designated amount at the retail location. This would enable these customers�—ideally underbanked and unbanked consumers�—to enjoy free �“trial runs�” of Green Dot products. If card recipients are happy with their Green Dot cards, it is likely that they will reload money onto their �“free�”

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cards and thus become Green Dot customers. Another potential promotional program would involve asking retailers to offer price discounts to customers who make purchases Green Dot cards.

Cardholder Fee Reductions: Monthly maintenance and other cardholder fees make Green Dot cards unaffordable to many underbanked and unbanked consumers. For instance, the requirement to pay a $5.95 monthly user fee might deter otherwise interested underbanked and unbanked consumers from purchasing Green Dot cards. The Company�’s current fee-waiving policy is that consumers who spend more than $1,000 or make more than 30 purchases on their cards per month are exempt from monthly fees. For the average unbanked consumer who earns less than $30,000 per year, $1,000 of spending each month amounts to 30% of his or her pre-tax income. Thus, Green Dot should consider lowering these thresholds to dollar amounts that are more reflective of underbanked and unbanked consumers�’ monthly spending habits.

Green Dot should also consider waiving fees for customers who meet certain loyalty criteria if the Company cannot afford to reduce the threshold amount for its current fee-wavier policy. One example of a potential loyalty program is waiving monthly fees for customers who ask their employers to load their paychecks onto a Green Dot card using direct deposit programs.

Remain Branded as an Alternative to Commercial Banks: Green Dot will have to closely manage its public relations if it becomes a bank holding company through its pending acquisition of Bonneville Bancorp. In particular, it will have to demonstrate to its unbanked and underbanked customers that the acquisition is not a stepping-stone in a long-term plan of becoming a commercial bank. The main attraction of Green Dot to unbanked and underbanked consumers is that it is an alternative to traditional banks. Thus, it is likely that the Company will lose significant portions of its existing unbanked and underbanked customer bases, in addition to capturing fewer new customers from these groups, if takes actions that make it resemble a commercial bank. Therefore, it should not try to offer checking and savings accounts to its unbanked and underbanked customer segments in the future.

CAMBRIAN GROUP

Mid to Long-Term Strategic Recommendations

After successfully increasing the number of unbanked and underbanked

consumers in its customer base through implementing the aforementioned strategies, Green Dot should transition its efforts toward better penetrating the banked consumer market. The Cambrian Group advises Green Dot to implement the following strategies in order to achieve this goal:

Customer Segment-specific Advertising Campaigns: Green Dot will have to market its cards as complements to debit cards linked to checking accounts in order gain traction in the banked consumer market. It can achieve this through advertising campaigns specifically targeted at banked consumers that present the benefits of owning a Green Dot card in addition to owning a bank account. For instance, Green Dot could run Internet advertisements on websites popular among banked consumers, such as news sites and online stores such as Amazon.com. These advertisements should emphasize how the potential consequences of identity theft from online shopping are less severe for shoppers using GPR prepaid cards than they are for shoppers that use credit cards or debit cards. Similarly, Green Dot should consider running advertisements on travel websites like Expedia.com that explain how it is safer to use a GPR prepaid card than one�’s debit or credit card while on vacation because GPR prepaid cards are not linked to debit accounts or lines of credit.

Green Dot should run additional advertisements targeted at middle-class parents that explain the benefits of buying Green Dot cards for their children. These campaigns should express the benefits teaching their children about budgeting through the use of a Green Dot card. Such advertisements should explicitly state that, unlike debit cards, Green Dot cards do not have overdraft fees. Expressing this will probably make many parents more willing to buy their children (presumably teens) Green Dot cards as opposed to open checking accounts for them. It would be most effective for Green Dot to run these types of advertising campaigns in magazines about parenting and family values such as Parenting and Focus on the Family.

Aligning with New, �“More Upscale�” Retail Partners: Green Dot can better

reach gift and pleasure shoppers in its banked customer segment by

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establishing retail partnerships with �“more upscale�” retailers that target banked consumers earning annual salaries around $70,000. Some retailers with which it should consider potential partnerships are: Albertsons, Vons, Macy�’s, and Best Buy. Albertsons and Vons both target more upscale demographics than Green Dot�’s current partners in the grocery vertical, and many of their customers are middle-class parents who might be interested in purchasing Green Dot cards for some of the reasons mentioned in the �“Customer Segment-Specific Advertising Campaigns�” section. Best Buy and Macy�’s are good potential retail partners for the same reasons, and because they are very popular destinations for gift shoppers (i.e. parents who might buy Green Dot cards as presents for their children).

Remain Branded as an Alternative to Commercial Banks: Green Dot

needs to remember that banked consumers use its products as complements to, not substitutes for, the products offered at commercial banks. Green Dot risks losing banked consumers if it starts to offer banking products like checking and savings accounts through becoming a bank holding company. It is probable that banked consumers will prefer to

continue using the checking and savings accounts that they already own at better-established commercial banks instead of opening new Green Dot accounts. In turn, banked consumers may become less interested in owning Green Dot�’s GPR prepaid cards since the Company will no longer resemble an alternative to commercial banks.

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SOURCES

1. Green Dot Corporation. FY 2010 Annual Report (10-K). 12/31/2010.

2. J.P. Morgan North American Equity Research. �“Green Dot: Loading up on Prepaid, Initiate at Overweight�”. 9/7/2010.

3. Morgan Stanley Equity Research. �“Green Dot: It�’s Easy Being Green;

Initiate at Overweight�”. 9/7/2010.

4. United States Federal Deposit Insurance Commission. �“Survey on Underbanked and Unbanked Households�”. 1/20/2009.

5. Lee Spears and Kristen Scholer. �“Green Dot Raises $164 million for

Owners in IPO as Investors Pay a Premium�”. Bloomberg Online. 7/21/2010. http://www.bloomberg.com/news/2010-07-21/green-dot-ipo-premium-may-provide-801-return-for-owners-wal-mart-sequoia.html

6. Yahoo! Finance. www.finance.yahoo.com

7. Green Dot Cards. www.greendotonline.com

8. Walmart MoneyCard. www.walmartmoneycard.com

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APPENDICES Appendix 1

Green Dot�’s Balance Sheet (all dollar amounts in thousands)

31-Dec-

10

31-Dec-

09

ASSETS Current

Assets: Unrestricted cash and cash equivalents 167,503 56,303 Settlement assets 19,968 42,569 Accounts

receivable, net 33,412 29,157 Prepaid expenses and other assets 8,608 7,262 Income tax receivable 15,004 5,452

Net deferred tax assets 5,398 4,634

Total current assets 249,893 145,377 Restricted cash 5,135 15,381

Accounts receivable, net 2,549 1,130 Prepaid expenses and other assets 643 1,047 Property and equipment, net 18,034 11,973 Deferred expenses 9,504 8,200

Total

assets 285,758 183,108

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LIABILITIES AND STOCKHODLERS' EQUITY

Current Liabilities: Accounts payable 17,625 9,777 Settlement obligations 19,968 42,569 Accounts due to card issuing banks for overdrawn accounts 35,068 23,422 Other accrued liabilities 21,633 13,916 Deferred revenue 17,214 15,048

Total current liabilities 111,508 104,732 Other accrued liabilities 3,737 2,761 Deferred revenue 44 97 Net deferred tax liabilities 5,338 4,154 Total liabilities 120,627 111,744 Stockholders' equity:

Convertible preferred stock - 31,322 Class A common stock 13 - Class B convertible common stock 27 13 Additional paid-in capital 95,433 12,603 Retained earnings 69,658 27,426

Total stockholders' equity 165,131 71,364 Total liabilities and stockholders' equity 285,758 183,108

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Appendix 2

Green Dot�’s Income Statement (all dollar amounts in thousands)

Year Ended

December 31, 2010

Five Months Ended

December 31, 2009

Year Ended

July 31, 2009

Year Ended July

31, 2008

Operating revenues:

Card revenues 167,375 50,895 119,356 91,233 Cash transfer revenues 101,502 30,509 62,396 45,310 Interchange revenues 108,380 31,353 53,064 31,583 Stock-based retailer incentive compensation (13,369) - - -

Total operating revenues 363,888 112,757 234,816 168,126 Operating expenses:

Sales and marketing expenses 122,890 31,333 75,786 69,577 Compensation and benefits expenses 70,102 26,610 40,096 28,303 Processing expenses 56,978 17,480 32,320 21,944 Other general and administrative expenses 44,599 14,020 22,944 19,124

Total operating expenses 294,569 89,443 171,146 138,948 Operating income 69,319 23,314 63,670 29,178 Interest income 365 115 396 665

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Interest expense (52) (2) (1) (247)

Income before taxes 69,632 23,427 64,065 29,596 Income tax expense 27,400 9,764 26,902 12,261

Net

income 42,232 13,663 37,163 17,335