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When the Federal Reserve approved a bid last month by prepaid debit card giant Green Dot Corp. to purchase tiny BonneĀ­ville Bancorp in Provo, you could almost hear Wall Street catch its breath.

The approval cleared the way for 11-year-old Green Dot to become a bank holding company, allowing it to collect deposits that will be insured by the Federal Deposit Insurance Corp. Calling the Fed's consent "momentous," a JP Morgan Securities analyst gushed that Green Dot "could disrupt the payment and banking space as we know it."

"Becoming a bank [will] yield Green Dot more freedom to offer bank products without the stigma or high operating [costs] of a traditional bank, putting Green Dot in the enviable position of not only empowering the underserved, but any consumer seeking low-cost transactional banking services nationwide," Tien-tsin Huang wrote.

Lofty language, but maybe there was something to Huang's exuberance. Other analysts piled on praise. The stock market listened. Investors inflated Green Dot's shares almost 8 percent on the day of the announcement. Ten days later, they were up 23 percent. On Friday, after several down days on Wall Street, the stock's rise had shrunk to 16 percent since the day before the announcement.

"I think everyone recognizes that this has a potential of being a ground-breaking endeavor," said Howard Headlee, who runs the Utah Bankers Association. "I know they [Green Dot] are incredibly innovative people, and we are all watching with great interest to see what new horizons they are going to pursue."

For now, Green Dot's key products are prepaid cards that function like debit cards but aren't linked to bank accounts. Money that customers deposit onto the cards is pooled and held at third-party banks that issue cards branded under the Green Dot name and, in a side deal, under the Walmart name. The low-fee cards are aimed mainly at young and lower-income households that refrain from using traditional banks. The FDIC estimates there are 30 million "unbanked" and "underbanked" households in the U.S., including 152,000 in Utah.

"We call [ourselves] the Southwest Airlines of banking," said Green Dot CEO Steve Streit. "Most Americans making the median income or lower are looking for just a basic, reliable, very inexpensive way to handle their daily banking needs, which means depositing their wages and conveniently paying their bills. That's it."

Over the next 18 months, the job of issuing prepaid cards will be moved to Provo's Bonneville Bank, which Monrovia, Calif.-based Green Dot gets as a result of buying Bonneville Bancorp. Walmart-branded cards will continue to be issued through GE Money Bank.

Streit said Bonneville Bank will stay in Provo, where it was established four decades ago. Bank customers won't see any difference. The bank's name will stay the same. It will still offer checking and savings accounts, credit and debit cards and loans.

"But we are adding to the bank the issuance of our prepaid cards that are sold nationally. This bank will serve as the FDIC-insured institution to hold those deposits [that customers make] and issue those cards," said Streit, a 49-year-old ex-disc jockey. "And we also hope to introduce products and services that we think consumers will like, that fit our pro-consumer mindset."

Streit is coy about what those products will be, though some analysts believe Green Dot will offer savings accounts or may start referring to card accounts as checking accounts.

"The importance of the acquisition of Bonneville Bank is it really helps them become the low-end disrupter in the consumer finance industry," said Gil Luria, an analyst at Wedbush Securities in Los Angeles. "They are filling a big gap in the marketplace [of people] who don't want or can't afford or cannot get accepted for a checking account."

Potentially, though, billions of dollars will roll through Bonneville's vaults. With 4.5 million customers, Green Dot already is the nation's largest provider of prepaid cards, with the prospect of signing millions more. Last year, consumers loaded $41 billion onto prepaid cards, up from $29 billion 2009 and $19 billion in 2008, according to Mercator Advisory Group. The Boston-based bank consulting firm estimates that $57 billion will be added this year.

Green Dot is "growing at least as fast as the market, if not faster," Luria said.

Which is why JP Morgan's Huang believes Green Dot has the potential to be "the next-generation bank." With 55,000 retail locations (Walmart, Walgreens and Rite-Aid are examples), it already has a sales platform that dwarfs the combined 19,000 branch offices of the top 10 U.S. banks, Huang said.

"Green Dot manages over 4 million active cards, activates nearly 2 million new accounts per quarter, and accepts $4 billion in run rates per quarter," he said.

Streit's counter-culture mentality arose out of an earlier career in radio broadcasting. He was once a back-up disc jockey to American Top 40 host Casey Kasem and was a programming executive at AMFM Inc., a radio group that media giant Clear Channel Communications bought in 1999. He is credited with creating soft rock and other radio formats aimed at adult audiences during the 1990s. Programming, Streit said, taught him a lot about catering to people's tastes and how to build formats with ratings that would catch the attention of advertisers.

He was left jobless when Clear Channel bought AMFM. Armed with a hefty severance package, Streit decided his next move would be to develop a consumer product. One day, "the light bulb went off in my head that there was a need to have a debit card product that could be used by younger people to shop online, and that idea seemed to me to be very relevant because the Internet was really catching on then with young people."

"So that was the original idea. Then, of course, we realized that it's not just young people who are looking to buy online and need to have a payment product like a MasterCard or a Visa. It was actually a whole lot bigger than that. And that really [provided] the energy and momentum behind the concept that is today Green Dot."

Streit takes pains to praise traditional banks. "The U.S. bank branching system is in many ways still the envy of the world, and they provide a very needed service for a very large portion of American consumers." But, he adds, banks aren't set up to serve consumers who maintain small average balances and don't borrow heavily. "So the only way you can be profitable off that customer is to charge overdraft or penalty fees or hope to collect other kinds of failure fees to make that account profitable."

That isn't inherently wrong, he said. But given that the economy has been so challenging to millions of mainstream Americans, fees suddenly are more important to consumers than they were five years ago, when nobody was talking about them.

"I just think people are more focused on money, whether it's bank accounts or bananas. Money is just a more topical subject matter of conversation than it was in 2007," Streit said.

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Costs for Green Dot prepaid card accounts

Purchase price • No activation fee when card is bought online. Up to $4.95 if the card is purchased at a retail store.

Monthly charge • $5.95 a month. Fee is waived if card is used 30 times in a month, or if the account holder loads at least $1,000.

ATM fees • None, when the card is used at 15,000 MoneyPass ATMs nationwide.

Other fees • No charge to reload cards with direct deposit; up to $4.95 if card is reloaded at a retail store.

Bottom line • Fees are zero, if consumers follow Green Dot's rules. Banks charge fees for overdrafting accounts; Green Dot accounts can't be overdrafted.

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