Green Dot Corporation

and welcome to the Green Dot Corporation third quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Tim Willey, Senior Vice President, Finance and Corporate Development. Please go ahead.

Thank you and good afternoon, everyone.

Today we are discussing Green Dot's third quarter 2023 financial and operating results. Following our remarks, we'll open the call for your questions. Our most recent earnings release that accompanies this call and webcast can be found at ir.greendot.com. As a reminder, our comments may include forward-looking statements and expectations regarding future results and performance. Please refer to the cautionary language in the earnings release and in Greendot's filings with the Securities and Exchange Commission, including our most recent form 10-K and 10-Q. or additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will refer to our financial measures that do not conform with generally accepted accounting principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today will be on a non-GAAP basis. Information may be calculated differently than similar non-GAAP data presented by other companies. Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release. The content of this call is property of the Green Dot Corporation and is subject to copyright protection. Now, I'd like to turn the call over to George.

Good afternoon, everyone, and thank you for joining our third quarter 2023 earnings call. Jess will provide an in-depth review of our financial results But before passing it to him, I'd like to share my perspective on the quarter and what drove our performance overall. Our non-GAAP revenue was up about 3% compared to the same quarter last year, while both non-GAAP and GAAP earnings metrics declined. Though we made progress on our major strategic goals, these results were below our internal projections due to a variety of transitory factors. We have had a lot going on this year. We deconverted several partners, we sunset legacy brands within our direct-to-consumer business to invest in and grow GoToBank, and we were impacted by increasing interest rates due to partner interest-sharing arrangements negotiated in a zero-interest environment. Additionally, as we completed the final stage of our processor conversions, we encountered challenges that impacted revenue growth, and we experienced increases in transaction losses arising from customer disputes. These latter issues are transitory in nature, but had a meaningful negative impact on the quarter and our projections for the balance of the year. Jess will discuss their impacts in more detail shortly. Lastly, we have increased and will continue increasing investments to enhance our regulatory and compliance infrastructure. Now, let me update you on our strategic priorities. First, I am pleased to confirm we have completed our processor conversions. The entire company has been focused on ensuring we complete this project, which has been a consuming multi-year journey. I want to thank everybody involved in helping us accomplish this goal. The move to our new card management system makes us a more nimble, efficient enterprise. While we still have important post-conversion cleanup work remaining, The completion of the conversions now allows us to redirect our focus and energy to other priorities and opportunities, including additional enhancements to our technology and product offerings, compliance infrastructure, and, of course, growth. Second, business development remains a key priority, and with the processor conversions completed, this is an exciting area where we are redirecting our resources and focus. We've been very busy over the past several months signing and launching new partners. You may recall on our last earnings call, we announced Ceridian as a new partner in the Bass Channel and signed PLS as a key partner for the consumer segment. During the third quarter, we launched Credibly, further expanding our reach to serve small and micro businesses, and we announced Stockpile as a new partner, which we will be developing and supporting a DDA account for their investing platform customers. Additionally, I just returned from Money 2020, where our teams met with current partners and spent quite a bit of time with prospective partners, and those discussions reinforced my confidence about our opportunity for significant growth as the embedded finance market continues to evolve and expand. Finally, we are making significant strides in evolving our workforce to maintain a dedicated focus on managing costs and allocating capital with a considerate and thoughtful approach. Our non-processing expenses were down 5% year-over-year and are down 7% year-to-date as the team continues driving efficiencies. We will increasingly realize cost savings from our platform conversions as we move through the fourth quarter and into 2024. And we will remain equally focused on driving efficiency in our investments, ensuring we are maximizing ROI as we capitalize on growth opportunities. Complementing this focus on efficiency is also ensuring that we are diligent and thoughtful in how we allocate our capital. We will continue to invest in areas like product and business development, as well as in our regulatory and compliance infrastructure to better serve and support our customers. I firmly believe it is critical for Green Dot to set the standard and be recognized as a trusted leader by both our business and regulatory partners as the market for embedded finance matures and evolves. I believe if it's done right, it will be a competitive advantage. In summary, we are making important strides in our journey and accomplished a significant milestone with the completion of our platform conversions. We are still in the middle innings with plenty to do. I want to thank all of our team members, partners, and investors for coming along with us as we execute this strategy.

Now, let me hand it over to Jess. Thanks, George, and good afternoon, everyone. I'll walk you through our key financial highlights.

and then I'll provide color on our updated guidance for the year. Our GAAP and non-GAAP revenue for the quarter each grew 3% year-over-year, while adjusted EBITDA and non-GAAP EPS were down year-over-year. As George mentioned in his comments, it was a solid quarter of progress toward our operational goals. However, the quarter was below our expectations for several reasons. First, we completed our processor conversion with the final account migrations in Q3. During that process, we encountered challenges that had a negative impact on revenue and costs. We also had increase in transaction losses associated with customer disputes. Like George, I believe both challenges are transitory. That said, we've been aggressively working to remediate these issues and continue to see steady progress and believe that many of these issues will move behind us as we exit the year. Lastly, We incurred incremental expenses in Q3 in connection with our ongoing investment in our anti-money laundering program, including improvements to our compliance controls, policies, and procedures. As mentioned in previous earnings calls and SEC filings, we expect to continue to invest in these programs to ensure we have market-leading compliance programs and to mitigate and reduce our fraud losses over the long term. With that high-level context to our quarter results, I'll provide color on each of our segments. First is our consumer segment. As you know, our consumer segment is comprised of both our retail and direct consumer distribution channels. As I've discussed on prior calls, this segment is impacted by changing consumer patterns within retail, the non-renewal of the retail program, and our dedicated focus on our go-to bank brand and our direct consumer channel at the expense of legacy brands that are now in runoff. While our retail channel is impacted by secular changes, and their non-renewal program, we are taking steps to reposition this business. Specifically, we are actively working with our retail partners on strategies that encompass a wide range of embedded account and payment experiences that are designed to help our retail partners continue to build enduring and loyal customer relationships through digital financial experiences, not just products on shelves. While we are making investments in digital product development, we are also intensely focused on making our cost structure in retail more efficient. In our direct-to-consumer business, we continue to fully commit our marketing spend to supporting our go-to bank brand, and as a result, we deliberately put legacy brands such as Rush, AccountNow, and others into runoff. As mentioned in previous calls, we sunset some brands in the second quarter as we continue to move through our processor conversions. We had success converting a portion of those accounts to GoToBank. However, as expected, many did not convert, and attrition of these legacy brands accelerated in Q2. We felt the full-quarter impact of that attrition in Q3. As a result of the strong growth in GoToBank, combined with the attrition of the legacy brands over the last two years, GoToBank now represents a substantial majority of the active accounts in the direct-to-consumer channel. and its growth rate will have a more pronounced impact as we move forward. In the third quarter, GoToBank continued to have strong year-over-year growth with direct deposit accounts up just over 20%, which resulted in strong growth in revenue per account.

With that context in place, let me give color on the segment's performance during the quarter.

Segment revenue was down 13%, driven by the year-over-year decline in active accounts. Revenue in our retail channel was down approximately 10% year-over-year, though I would note that there were some modest timing benefits to revenue during the quarter, and I would not view this rate of decline as the core performance of the business, which I estimate was still probably declining at a rate in the mid-teens. However, I remain confident that the rate of decline is moderating. Per my earlier comments, the direct channel saw revenue decline of approximately 20%, an acceleration from the prior quarter, due to the brands we sunset in Q2. It's worth pointing out that excluding the impact of the products that were sunset in the direct channel, we believe the rate of decline in direct deposit accounts continues to moderate. This is fueled in part by some moderating declines in retail, but also in the direct channel as GoToBank builds momentum. Direct deposit accounts are about a quarter of our total accounts in the segment, and these accounts are more engaged with higher volume and revenues than non-direct deposit accounts. Overall, revenue per account continues to improve slightly, despite some headwinds related to the conversion, as we drive deeper engagement rates, particularly with GoToBank, helping to offset the attrition in legacy portfolios. As I've said many times, this is an evolution, and we are encouraged by what we are seeing from GoToBank and the impact it's having on the direct channel and the increased likelihood They can help drive continued moderation in the rate of decline for the overall consumer segment, and I believe we were moving closer to an inflection point. Segment profit was down year-over-year by 21% due to the decline in revenue from the headwinds discussed, as well as the impact on expenses from challenges around our conversion and transaction losses that I mentioned earlier, partially offset by a modest decline in processing costs as we moved away from our third-party processor with our final account migrations. In the B2B segment, which consists of our BAS and Rapid Paycard channels, aggregate revenue growth of 26% remains driven by our BAS channel, where revenue was up approximately 30%. The growth of one of our larger BAS customers continues to power the top line while we face headwinds on revenue and actives from the roll off of two BAS partners. We also began to see some of the positive impact of new partner launches. In the Rapid Paycard channel, our revenue and active account growth has moderated due to macro shifts in the temporary staffing industry, one of our primary verticals, where we believe that wage inflation and recession fears have impacted hiring decisions. We experienced active declines in this vertical in late 2022 through May of this year, and we have seen a steady sequential rebound. Our revenue was also impacted by a shift in the mix of purchase volume that is weighing on interchange rates and changes in consumer ATM behavior. That said, strong sales activity and leading indicators in the core pay card product, as well as continued growth in our EWA offering, gives us confidence that momentum in this channel should reaccelerate in the coming quarters, with the third quarter showing improvement versus the first and second quarters. Profit in the B2B segment was down 16% and margins compressed, as expected, driven largely by the impact of client deconversions in the BAS business and the dynamics I just discussed in the rapid pay card channel. While we face what we believe are temporary pressures on revenue growth, we continue to invest in the pay card business as sales momentum has been strong, while also incurring expenses to support the launch of BAS partners. Shifting to our money movement segment, Revenue was down 15% year-over-year from the decline in cash transfer volume and the timing of tax refund volume. The Green Dot Network business continues to see the rate of decline moderate from the mid-teens in 2022 to a low double-digit decline in the third quarter of 2023. Revenue declines remain driven principally by the impact of the decline in active accounts in our other segments, partially offset by the continued growth of third-party transactions. Volume from third-party programs represent over 60% of our total cash transfer volume and continue to grow in proportion to total volume. With numerous new partners slated to launch in the coming quarters, I am optimistic about returning to overall growth in this segment. Our tax refund volume is down year over year because of timing shifts versus last year, and on a year-to-date basis, revenue in our tax processing channel has generally flattened last year. profitability remains solid with some modest margin expansion in both tax and green net network businesses. Our final segment, corporate and other, reflects the interest income we earn at our bank, net of the revenue share on interest we pay to BAS partners, as well as salaries and administrative costs and some smaller intercompany adjustments. Interest income net of partner sharing was down year-over-year, as expected, due to a higher rate environment. As a reminder, The rapidly rising rate environment of 2022 and 2023 created an imbalance between the blended yield we earn on our cash and investments and the rate we pay our vast partners and effectively creates a headwind for revenue in this segment. Sales and other general administrative expenses were down slightly from last year as we began to see the impact of our cost-cutting efforts and the early benefits of reducing the costs associated with our technology conversions, partially offset by our investments in regulatory and compliance infrastructure. Now turning to guidance. We are raising our revenue range to $1.46 billion to $1.48 billion. And we are reducing our adjusted EBITDA range to $170 million to $175 million. Likewise, we are reducing our non-GAAP EPS range to $1.62 to $1.69. We are lowering our bottom line guidance based on our Q3 performance and our belief that the headwinds associated with the conversion and customer disputes will continue to persist into the fourth quarter. As mentioned, we believe these matters will be resolved before we exit 2023. We also expect to have incremental expenses in Q4 associated with our continued investment in regulatory and compliance infrastructure. Let me provide you with some general commentary on how I expect the fourth quarter to play out. In the consumer segment, we expect revenue to be down a little bit more than 20%, while margins should be up over 500 to 550 basis points from last year. In the B2B segment, we look for revenue growth in the quarter to be in the low 30% range, with margins to be up approximately 75 to 100 basis points. In the money movement segment, we expect revenue to be down a low single digits and margins to be down approximately 300 to 350 basis points. In the corporate and other segments, we still face an earnings headwind from higher interest revenue share, which influences the corporate revenue line, and that is expected to continue into the fourth quarter. Though we expect to realize additional reductions in expenses as we wrap up the post-conversion work, we anticipate that those benefits will be offset to some degree by our ongoing investment in our regulatory and compliance programs. For the quarter, I expect our non-GAAP effective tax rate to be 23% and the diluted weighted average share count to be approximately 52 million shares.

With that, I'll turn it back to George. Thank you, Jeff.

While our financial results in the third quarter were below our expectations, completing the processor conversions was a critical accomplishment and is fundamental to our long-term growth strategy and success. As I stop and reflect on where we are today, I am encouraged by the progress we are making. Our business development efforts are building momentum as we signed several new enterprise partners at our BAS and consumer segments, more than 270 new customers in Rapid, Paycard, and EWA business, and we added five new partners to the Green Dot Network. As I mentioned previously, I remain very encouraged by the feedback and discussions we are having with current partners and prospects, and our pipelines remain strong. We remain very focused on driving efficiency and smart investment throughout the organization and are now beginning to realize the cost savings from our platform conversions. Completion of this project positions us to be a nimble, streamlined company and deliver innovative, efficient, and customizable solutions for our partners and their customers. Just as important, this enables us to reallocate resources to focus on other areas and opportunities for the company and invest in areas such as product development and risk and regulatory infrastructure. As I said in my opening remarks, I want to position Green Dot as the trusted partner for all of our stakeholders and view this as a competitive differentiator as the market evolves. But we are not yet able to provide guidance for 2024. I would like to share some thoughts with you. One year ago, we were faced with the reality that several partners would be moving on and we had a significant and critical processor conversion underway. Today, I can confidently report that we have made significant progress in navigating those circumstances and positioning GreenDot for growth. The one metric that I keep coming back to when I think about our ability to generate sustainable growth and shareholder value is account growth. I believe that we are in a much different position than we were one year ago. In the consumer segment, we are seeing moderation in the rate of decline. The repositioning of the direct channel is in its final innings, and we will be launching PLS in the first half of next year. In our B2B division, we will be lapping the deconversion of two BAS partners while simultaneously enjoying the benefit of launching Ceridian, Credibly, and Stockpile, on top of growth from our existing customer base and with continued solid pipelines. Now, rapid pay cards saw pressure on accounts in the first half of the year, We are now seeing steady sequential improvements. There are always many moving parts when you go through the process of building budgets and forecasts, but unlike last year when we saw a clear headwind for account growth coupled with a big technology lift, it looks markedly different as I stand here today. There is still plenty of work to do, but I am pleased with where we are on our transformation, and I am very grateful for the hard work and dedication of the Green Dot team as we work to deliver on our goals for 2023 and beyond. while being good stewards of the trust and capital that our customers and investors have given us.

Thank you for your interest in Green Dot, and now let's open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ramsey L. Assel with Barclays. Please go ahead.

Hi. Thanks so much for taking my question tonight. I appreciate it. I wanted to ask for a little bit more color on some of the challenges you encountered around the processor conversion and also on the customer disputes that you called out as well. What were those two things, and do you feel pretty confident that they're fact transient, you can kind of move past them by the end of the year, as I think you mentioned?

Hey, Ramsey, it's Jess. Thanks for the question. Without going into too many details, there was some I'll call them general configuration issues that were on the margin that affected certain revenue streams associated with accounts. And then we had other impacts, like we said, associated with elevated customer disputes. So all in, you know, I would expect that impact was, although it's hard to specifically quantify, was around $8 million in Q3. And so those Some of those challenges have been mitigated throughout the course of Q3. Some are continuing in. So I think in some respects, some of the migration or conversion issues are still there, just not as plentiful as they were in Q3. And then we're still seeing elevated dispute volume in October.

Okay. And you mentioned GoToBank and making progress there in terms of that being now the large majority of that part of your business, and also taking steps to kind of reposition the business. I think you said working with retail partners on embedded accounts and building relationships through digital experience or something like that. I'm looking at my notes here. But can you give us any hint in terms of what the future there might look like, what types of categories of improvements or refinements that you're making that could, you know, see the product, you know, catch a tailwind from some, you know, enhanced offerings as we move forward here.

Hey, Ramsey, thanks for that question. This is George. Yeah, first, to be clear for the broader audience, within our direct-to-consumer channel, at the beginning of this year, we were managing a number of brands. Several of those brands had been acquired through M&A some number of years ago. And they had to spare processing platforms and user interface and technologies. So it was a complicated challenge to continue to manage individually small subscale brands. So we made the decision to migrate away from managing those legacy brands and put our investment dollars into GoToBank, as you're aware of. So GoToBank today is and will remain our flagship consumer product. that we will offer direct to consumers. We also offer GoToBank in retail locations on a selective basis where it's appropriate for that brand. So as we make marginal investment in our own branded GoToBank product, it'll be all around and focused on ease of use, ease of understanding, consumer education, access to credit in the future down the road. payment types, form, et cetera, so we can concentrate our investment on one platform, one capability. So GoToBank will be that flagship product for us. It is today, and it will be in the future. But as we move through this year, we're able to discontinue the investment in these other brands that Jeff mentioned in his remarks.

Okay, got it. That's very helpful.

Thank you. Thank you.

Our next question comes from Chris Kennedy with William Blair. Please go ahead.

Good afternoon. Thanks for taking the question. There's a lot of discussion about investment in regulatory infrastructure. Can you just talk about the regulatory environment and how you see that market, particularly within the BAS business?

Sure. Thanks, Chris, for that question.

It's correct. Our efforts to ensure continued adherence to high standards with respect to regulatory compliance continue. They will continue. They're a very important part of our value system at the company. Our primary value being stewardship. We are stewards of deposits, and it is critical that we Treat those deposits and those transactions associated with them with the highest level of care So we're going to continue to improve how we perform along those lines, but to take the broadest view of your question I'm sure most of the participants on the call today are familiar with some of the more recent news events associated regulatory developments and to the pointed part of your question around BAS in particular. So you may be familiar with the executive branch regulatory agencies launched a novel bank program several months ago. I assume that program has a number of objectives associated with it, but certainly I think one of those objectives is to enable the regulatory agencies to broaden, deepen their knowledge with respect to BAS models, sponsor bank models, et cetera. Just this week, you saw the CFPB issue a notice of a rule, draft rule intended to extend their oversight of ostensibly non-bank enterprises that are conducting financial transactions. That's a very important development. So you can see that there's a lot of regulatory attention and activity associated with, I guess if you put a cynical frame to it, regulatory arbitrage, or basically payment transactions that move outside of a banking system and therefore might get treated by by the manager of that payment transaction in a different way than a bank might treat that regulatory oversight. Now in general, that set of developments in our view is very positive. And I'll come back to why we think that in a minute. But before I leave this kind of overview of some recent news, I'd also point out you may have read in the Times this weekend an article that was discussing numerous circumstances where consumers get their accounts closed without information, which leaves them in a lurch. largely, as the article suggested, due to BSA and anti-money laundering activities and controls put in place by banking institutions, which is having real implications to consumers' caught in a net even if they don't engage in any otherwise, you know, or any nefarious activity whatsoever. So we have this kind of environment that's developing. I suggested to you I think it's a good development from our perspective. We do have a lot of scale in which we can capitalize on to invest in adequate, appropriate, advanced compliance tools and systems. And here's what we want out of the regulatory environment, and I'll pause after this to let you ask a follow-up question, but we, Green Dot, absolutely want a rigorous regulatory environment. Our core value is stewardship. It's absolutely imperative that our economy trusts DDA accounts. That trust is fundamental. So having rigor in a regulatory environment is something we view as very positive. But we want, like all participants in a market like this, a level playing field. All payment transactions need to be treated comfortably, regardless of how they're shepherded through a payment life cycle and by who. We want transparency in regulation. We want the regulations to be clear, clearly understood, and we want them applied consistently across regulatory agencies. So I think those are pretty modest desires with respect to what we want out of the regulatory environment. We do view the recent developments to be positive. I would leave this topic with this thought. Green Dot was formed more than 20 years ago with the promise of bringing banking to Americans who did not have access to the traditional banking system. And that promise remains. We continue to do that. We provide millions of accounts to consumers who have an average deposit of $200 or $300. And those consumers remain in need. They're in the economy. The large banks do not want to serve those consumers. We are here to serve them. Of course, it's incumbent on policymakers to... to decide how they want to regulate entities that provide these services to lower-income Americans. And we would encourage policymakers, whether out of the executive branch or the legislative branch, to continue their efforts to provide that clarity. So I've rambled on a bit. It's a hot topic, but I appreciate the question, and I'll pause and let you ask a follow-up.

No, thank you. Very comprehensive. On a separate topic, I understand you're not going to give 2024 guidance, but when you think about everything that you've done, focused internally over the last several years, and as now that you focus externally, can you just talk about the growth of the business over the next three to five years and kind of what you're thinking DreamDot can do? Thank you.

Yeah, I'm going to stay away from your invitation to give any quantitative perspective on that, although I will just make some observations about each of our channels in a qualitative way. We have our rapid pay card business. It's a great business, very well managed, has been a consistent growth engine for the company, understanding we had a particular category of that business that pulled back this year. We think that's temporary. And in addition to the standard rapid pay card distribution we have in that channel, we also have the emergence of EWA. And as I've mentioned in prior calls, we're extremely optimistic and enthusiastic about that product category. So I feel very, very good about that. In our direct-to-consumer business, we just mentioned GoToBank. We've not quite completely transitioned through the attrition of legacy brands, so that's inevitable in the very near term. and go to banks. Both last quarter, this quarter, we expect next quarter is growing very nicely. The Bass business, you know, many, many, many opportunities to be very successful within that business in an immense market. We have highly differentiated capabilities to serve that market, and we think that's going to serve us well in the growth perspective and to Jess's comments, we've migrated off of the platform and we'll go through the declines that we've experienced in that business. Our tax processing business, TPG, has remaining important opportunities to grow margins and to sell incremental services to tens of thousands of small businesses, micro businesses, one, two, three person employee businesses, and just a very rich set of potential product offerings within that business. And then we have retail business. Retail business has been declining. I'm not gonna sit here and say I have unbound optimism that this product procured off of the rack in a retail location is something that's going to be a growth engine for us. We do think it'll level at some point in the relative near future. But what's important about the retail business to us is that we have a embedded set of relationships with the nation's largest retailers all of who want to deepen their relationships with their consumers, particularly those consumers who are using today their loyalty and rewards programs. And so the future of the retail business is to embed financial solutions into those reward programs. So that's a little further down the road and a little bit more complicated from an executional perspective. But even that business, given our existing relationship, has a lot of opportunities for us. So I know I didn't directly give you numbers that you might have hoped for, but that's kind of the way I think of each of our channels.

Understood. Thanks a lot for taking the questions.

Sure. Thank you.

The next question comes from Michael Berto with KBW. Please go ahead.

Hey, good afternoon, guys. Thanks for taking my questions. Hey, Michael. I want to kind of stick on the last topic for a second here. You know, as you guys were talking, I kind of was just looking at your segment revenues over the last few years and you've kind of morphed. I mean, I think back in 21, it was like 50% consumer, a third B2B, 15% money movement. You know, the 15% has been pretty steady on contribution, but now B2B is about 50 consumers, about a third, I guess. Is that indicative of, obviously where you guys are investing, but as we think about kind of where that trends from here and all your segment commentary today, I mean, is the B2B, is that where you guys are seeing the best kind of margin and pricing opportunities? I mean, it would seem to dovetail a little off the regulatory comment too. I mean, as that gets more onerous, I mean, has pricing in BAS gotten better or at least a little bit less competitive? I'm just kind of curious in terms of like allocating capital to the most profitable opportunities, how you guys are thinking about that.

um thanks michael um first uh on your comps uh just to clarify there's two kind of important asterisks that i would highlight on your comp one is obviously over the last two years you you went from uh well i guess if i went back four years you'd go from a pre-code covid to a covid to substantial uh federal uh stimulus uh that impacted the business comp and than the withdrawing of that comp. So that's something always important to keep in mind. And then, of course, we have a singular BAS partner on the revenue side that makes up a significant percentage of our revenue. And I don't know the page number in the 10-Q, but we disclose it in there and you can look at that later. So that's kind of a, and that particular contract has, you think of it as a relatively fixed margin, not fixed percentage, fixed dollar margin. So that's a complicating factor when you think about these trends. But now to the substance of your question. When we think about account growth as a leading driving metric for our business, we do and will continue to invest capital in our direct-to-consumer business, our go-to bank product. That is absolutely going to be core to what we do. We're going to continue that. that's going to remain unchanged. And to the extent we develop opportunities to increase that capital into that business, we will on a cautious basis. Now, the nuances of that capital implication are that, of course, when you invest in a direct consumer business, that capital investment directly hits your P&L at the moment it's incurred. And so that creates some constraints with respect to the capital allocation. And importantly, when you put a lot of capital into direct-to-consumer in a particular narrow product set, it can in and of itself cause inflation in the cost of acquisition. And so we're very cautious about those variables. And so we will continue to invest in that on a steady basis. But I would not expect a dramatic change in that investment. So we have our bath business, which when we win a bath opportunity, obviously these clients have a large embedded customer set. that then is marketed into that set of customers by oftentimes the BAS partners, sometimes with our help. And so if we acquire the right type of BAS partners, we're looking at acquiring account portfolios of 100,000, 200,000, 300,000 type accounts. And If you think of the marketing element associated with that partnership, they come through as commissions, and we only incur the marketing costs when we sell a product. And so there's various advantages to that market. Lastly, I will leave you with the concept that, of course, we have a set of platforms to deliver our services. We have a banking platform. We have the Green Dot Network platform. We have a product platform. We have a technology platform. And each of these platforms are intended over time to serve all of our distribution channels, irrespective of the capital allocation. So we allocate capital into those platforms. The marginal capital to go to market in one of our distribution channels to win a client is relatively small. So if we do a good job in building these platforms, we'll have scalable operations and our marginal capital to exploit the channels we're already in is there for us. But I expect that we will continue to increase, will increase in the future, both our investment in our platforms and our distribution and capabilities and competencies and selling approach in the BAS channel in particular. But I don't mean that to mean that we're going to starve the rest of our channels.

That's helpful perspective. Thanks, George. Second question for me, not to kind of go back here because I know you guys said you're not providing 24 guide yet, but maybe less on the revenue side. Just on the expense side, just curious because it sounds like there are some expense tailwinds possibly as you come out of the core conversion related to that. But I imagine there's also kind of redeployment maybe of some headcount in other areas, whether that involves maybe hiring some new people, even though it's net-net, not a lot of FTE ads. You know, obviously, there's still the regulatory piece, I imagine, kind of sustains for the foreseeable future at an elevated run rate. But just curious if you're willing to provide any context around, you know, some of the things we should be thinking about for expense growth in 24, just coming out of the conversion based on what you're seeing today.

I've been talking so much, I'll let Jess take a swing at that one.

Sure, sounds good. So, Several quarters ago, we talked about savings associated with the conversion. I would say those are largely on track, starting to realize the savings now the process of conversion is complete. So expect that the year-over-year benefit in 2024 would be something less than the annualized savings because we'll grow over savings achieved this year. But nonetheless, that will help margins, particularly in the consumer segment and to a lesser extent the B2B services segment. But we'll impact both favorably. So that was a huge undertaking for us because it is a material benefit to margins long term. We have other long-range planning activities. We still use some third-party processors, for example, in our rapid pay card business. There's an opportunity to take out that third-party processor that has material savings for us. So there's several things underway that would enhance margins over the long term. You know, in the B2B services, George mentioned we have a particular contract that has a fixed structure. So, you know, as long as that remains, that will have a way on overall margins. But if you exclude that particular partner, the rest of the BAS partnerships have, you know, strong margins. And, of course, our money movement business, particularly in the TPG business, really, really strong margins. And even in our money processing, we call it the green dot network, has really, really strong margins as those grow. And then lastly, I would say in the pay card business, EWA is also, I would say, has a margin in excess of what a traditional pay card business would have. George, anything you want to add?

I just add, when we talk about savings from the conversion, the processing conversion, and we've quantified that in prior calls, that the savings has two elements to it. It has the OPEX savings because we have now a much lower cost structure per unit of processing. And we invested considerable capital in 2023 and 22 with respect to that activity in preparation for building up a new platform. And so we expect to have an opportunity to reduce our capital consumption and to improve our margins and thereby our primary focus will be improving free cash flow as a result of those efforts. And I just leave you with the... I hope the appreciation that we're extremely focused over the long term on building a scalable enterprise that has marginal growth from the incremental dollar of revenue on our EBITDA and other earnings metrics. So I'll pause there and hopefully we helped you with your question.

Yeah, no, for sure. Thank you guys. Thank you both. And then just lastly for me, I understand it might not be the biggest strategic priority here, but with the some of the technology projects under your belt and, you know, a very kind of disrupted and generally broader kind of fintech payments, banking market and, you know, valuations down pretty much across all sectors. Is there any thought or, you know, updated thoughts you're willing to provide around kind of M&A or any opportunities to put capital to work in that arena? If the answer is no, that's fine. I don't believe we've kind of chatted about it in a little while here, so I just wanted to see if there's any updates on it.

Yeah. First, I'd say with respect to the interest rate environment, it has some benefits to us and has some challenges for us. Jeff commented on some of those challenges in his remarks. So I won't repeat them. But from the competitive landscape perspective, obviously in 2020, 21, et cetera, in an extraordinarily low interest rate environment, emerging companies, VC level companies could acquire very inexpensive capital and in some cases be unruly with that capital with respect to how they go to market to acquire accounts. And that kind of behavior is tempered in our current interest rate environment, we view that as a very positive development for us since we're not generally in the trying to find capital business right now. So that's good. And then over the course, whatever your prognosis is for interest rates in 24, and one of the biggest variables to our planning and budgeting process in 24 is what to expect for bed interest rates in 24 that were that we're working through. And by the time we can give guidance, we'll need to take a perspective on that. But should those rates decline in 24, that could have a relatively significant positive impact on us. But as it relates directly to your question around M&A, I think that we're really focused on building out our capabilities, the platforms, our distribution capabilities, and focused on putting our capital to work there as opposed to layering on more complexity with integrations, et cetera. So I would say generally, to the extent we would be interested in M&A, we would be extremely cautious about it. Perfect.

All right, guys. Thank you very much.

Yeah, thank you.

Before we move on to the next question, I'd like to request questioners to stick to one question and one follow-up. And the next question comes from John Heck with Jefferies. Please go ahead.

Hi, guys. First question is just very technical. What's the duration of the securities book at this point in time? I believe it's around six years. Okay. And then... The second question is, in the consumer segment, the GDV and ARPU, relative to recent quarters, you're seeing different growth trajectories and different dollar amounts. And I know that you guys talked about different products that haven't renewed. And obviously, within the go-to bank, there's a sort of a different approach to getting a direct, you know, banking customer and this and that. So the question is, can you characterize kind of how the customer is using Green Dot services and kind of with a mix of revenue now, say, versus like a year or so ago?

That's a good question. So as you know, several years ago, we launched overdraft protection for our consumers. We offered that to principally only our direct deposit base. So that has helped drive direct deposit attachment rates, makes us overall more efficient with our customer acquisition costs, and then ultimately lifetime value because direct depositors are more highly engaged, drive higher GDP, higher revenue per active, etc., And we've rolled that across almost all of our brands. So that certainly has been a change. I think a lot of the product enhancements and things that we've done also help drive engagement. We've offered credit monitoring products, and we've got a full suite of things that we're focused on in 2024 to continue to drive retention and engagement amongst the consumer base. And then in Bath, I would say, you know, just the type of partners we're engaging with. We've been very encouraged with the growth of those, sort of those partners we've added in the last couple of years. So some of them are SMB, some of them are in other sort of verticals, but we're seeing good attach rates there, you know, strong revenue proactive in those particular verticals, et cetera. So I think, you know, what we'll continue to do is, iterate on our product offerings and continue to drive acquisition efficiency and engagement. I'm not sure I'm answering your question, John. Let me stop there.

No, I mean, you talked about the different focuses. I guess is there a way to explain like the standard customer, like the mix of revenue at the customer level and what's changed predominantly over the past year?

I mean, interchange is still one of the largest drivers of revenue for any of the products. I'd say that's followed in some cases by other fees, monthly ODP fees. So I haven't seen a dramatic shift in sort of the revenue stream, but we have seen, as we've mentioned with GoToBank, strong, strong growth in direct deposit, and that will have long-term benefits for us. Okay. Thanks, guys.

Thank you.

Our next question comes from George Sutton with Craig Hallam. Please go ahead.

Hey, guys. This is James on for George. Thanks for taking my questions. What ending would you say we are in in terms of running off the legacy portfolios in the consumer business and sort of how we should think about when that process might be over and maybe when we could see the consumer segment maybe return to growth?

Yeah, without providing any 2044 guidance as a precursor to my following comments, I do think that, you know, we talked about retail moderating. I think we're largely in, you know, the seventh inning, if you will, on the legacy products and runoff. So, you know, there is a possibility that in the second half of next year, we could start to see overall growth in the consumer business.

Great. And then congrats on the new Banking as a Service partners this quarter and last quarter, I guess. How would you describe the Banking as a Service pipeline today compared to maybe the start of the year? And then is the completion of the platform, the conversion sort of helping you close deals or become more competitive?

Thanks, James.

The pipeline work, let me start with this. So a year ago, and in fact, I think yesterday, if I recall, was Chris Ruppel's one-year anniversary in his new role as Chief Revenue Officer. At least prior to my arrival, at least for a couple of years prior to my arrival, that position did not exist at the company. And so Chris's first job was to embed and conform all of our divisions to standard standards. operations with respect to pipeline management using consistent tools, methodology, measurement, etc. We've gotten that in place and so now I can fulsomely answer your question. Our pipeline from the beginning of this year has grown considerably. It's qualified, it's measurable, it's stated on a probability-based standard. And so our pipeline in the Bass business, and in fact in several of our business, I think is healthy and growing. I would say some areas we need to improve at is we need to improve our ability to onboard expeditiously, both small and large clients. We're going to be very focused on that type of improvement in 2024. We've got a great pipeline. We have a lot of evidence we can close deals. We need to do a better job at bringing those deals into the P&L in a much quicker way.

Great. Thanks. Thank you.

With no further questions, this concludes our question and answer session. I would like to turn the conference back over to George Gresham for any closing remarks.

Well, thank you, Operator. I'd like to focus my closing remarks today on our colleagues and associates at the company. it's been a lot of work to go through this process or conversion takes a lot of late nights a lot of weekends a lot of effort and we have a really dedicated team of professionals at the company and I want to make sure they understand that they're appreciated and the work they have done has been extremely valuable for us so let me just close by thanking our colleagues and team members and employees at the company And thank you to the rest of you for keeping interested in our story as we move along this path. Very much appreciate it.

Thank you all. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.