A new affinity banking service developed by Green Dot proposes to tap one of the most potent — and controversial — sources of distribution in the digital economy: social media influencers.
The digital banking and payments provider is developing what it calls Bank OS, a simpler version of its enterprise banking-as-a-service platform already used by the likes of Intuit, Stash, Uber and Walmart. It would enable partners to develop their own financial products just as those brands do, including offering credit cards, debit cards with loyalty programs or even a mobile app.
But instead of aiming for big corporations, the target user for the next phase of its offering is “the app store developer, the social media influencer, the midsize retailer or the smallest store owner with three employees who wants to do some sort of payroll card or wants to do some sort of rewards card for their own customer base,” Green Dot CEO Steve Streit said in a February earnings call.
The payoff for turning the influencer economy into a banking product distribution network could be huge; Forbes calculated the top 10 influencers combined reach more than 246 million people.
“I want to be clear that this is a big idea and we believe Bank OS has the potential to become one of the biggest initiatives in Green Dot's history,” Streit said during the earnings call.
But working with the so-called influencer economy carries risks. The Federal Trade Commission and the Securities and Exchange Commission have put influencers under closer scrutiny over concerns about their outsize impact on marketing and consumer spending. And there have been highly publicized duds in the past. The Kardashians, arguably the brand that ignited the social influencer phenomenon, launched the short-lived Kardashian Kard, a prepaid offering that was widely criticized and quickly abandoned after it charged users an array of high fees.
But Green Dot, which also has its own bank with $1.5 billion in assets, says that Bank OS will have safeguards in place to prevent the kind of abuse already associated with influencers, such as the Fyre Festival sham.
“Just like the rules imposed on App Store developers, Green Dot intends to have various guardrails and controls within Bank OS to ensure any products built on the platform are compliant with regulation and in keeping with our company’s risk appetite,” said Kuan Archer, Green Dot’s president and chief product and technology officer.
Terms of the offering are up for negotiation, Archer said. "Just as with any of our current BaaS partnerships, each bOS partnership will have its own revenue model, and these will not be disclosed."
Archer added that it's not just about influencers.
This is about “taking the same services ecosystem already being used by some of the largest and most well-known companies in the world, the infrastructure that already powers mobile banking and mobile payments experiences for millions of people, and making that available on a more ‘self-serve’ basis to qualified product designers and developers,” he said.
“The big idea behind Bank OS isn’t about the end-state product itself,” Archer added. “Rather, the big idea about it is bringing the power of access, speed, flexibility and creativity directly to the designer, the product manager and the developer.”
The idea came to Streit while the former radio disc jockey was attending Apple’s annual Worldwide Developers Conference in 2017. Archer was on the receiving end of Streit’s texted missives from the conference and said the concept immediately resonated with him. “I remember excitedly texting him back ideas regarding how it could be done,” he said.
Streit emphasized during the earnings call the need for Green Dot to develop Bank OS in the “right way.” Archer says that means "the platform and its development tools and core capabilities need to deliver what developers and product managers need to build the products they want and need in order to be successful."
Analysts said the plan shows how much banks and fintechs are expanding into areas that didn't exist until relatively recently. It's a play to be part of
“It speaks to the shake-up that we’re currently experiencing in the industry in terms of turning traditional banking upside down,” said Jacob Jegher, senior vice president of banking and head of strategy at Javelin Strategy & Research. “It’s going to revolve around the business case. In other words, is this a viable entity that we should be targeting for this banking service product?”
Green Dot is building out much of the key technology and operating components for what Streit called “bOS 1.0.” He’s hopeful for a 2020 launch. Meantime, Streit said Green Dot will work to bolster its current enterprise BaaS platform in two parts.
“BaaS 3.0 builds upon all the features, functionality and robust risk controls of Baas 1.0 and 2.0 and adds a new user experience capability that powers the creativity of the designer,” Streit said.
He added that BaaS 4.0 will continue to build upon the risk controls while adding additional unnamed features.
Jegher said one potential drawback to a brand offering a financial product through Green Dot’s system is who services the account when problems arise.
Green Dot, of Pasadena, Calif., is far from the first in the U.S. to dabble in the realm of banking as a service.
BBVA Compass, the U.S. subsidiary of the Spanish multinational Banco Bilbao Vizcaya Argentaria, last year introduced its BaaS service called Open Platform, which is meant for early-stage to enterprise companies to integrate financial services into their products. While BBVA officially launched Open Platform in December, it was born out of the need to help with the transition of the online-only bank Simple to its systems, said Abhishek Gupta, the head of BBVA Open Platform. BBVA acquired Simple in 2016.
From there, BBVA launched an online-only small-business banking account, Azlo, and a mobile banking account meant for expats living in the U.S.
“We incorporated our learnings from these integrations to create an open, intuitive platform providing a full stack of banking and payment solutions in one place,” Gupta said.
Digit, the popular savings app, earlier this year became one of the first third parties to use Open Platform for its Digit Pay offering.
Digit Pay enables users to create a savings goal to help pay down credit card debt. The fintech uses what BBVA calls the Move Money API to initiate ACH transactions and submit automatic bill payments to the issuers a user has on file with Digit. BBVA holds the funds in the customer’s name.
Gupta said the service potentially helps apps such as Digit become more useful to their customers.
“What we see in the marketplace now with companies like Digit is that they’re trying to deepen the relationships out there with their customers,” Gupta said. “They’re looking to offer more products and touchpoints for their customers.”
Modo, which handles payments systems for retailers, uses BBVA’s Open Platform to operate a program that lets shoppers accrue and redeem points between retailers.
Gupta would not comment directly on Green Dot’s Bank OS but said the company’s general involvement in BaaS validates BBVA's vision for its own plans.
“In 2019, it’s all about scaling BBVA’s banking-as-a-service business,” he said.
The opportunities to scale for BBVA, Green Dot and others are aplenty as banks are finding they don’t necessarily “own” the customer as they once did. The rise of microinvesting and savings apps have shown consumers are engaging in financial activity with two or more providers.
Traditional banks can step in to be a bridge of sorts.
“Banking products and financial services have been in the domain of the banks for so long,” Gupta said. “We realize that we’re not the only ones who will create these kinds of products. Digit came up with a very powerful proposition around goals and being able to pay down credit card debt. They needed a bank partner to bring that to life.”
Jegher said these initiatives from BBVA and Green Dot give the industry a sense of where banking is headed.
“Classic banking is not necessarily going to reign, but you can also expect banks to play a far greater role with things like this,” he said.
