Green Dot 2010 Annual Report Download - page 34

of the authorization for that transaction, as permitted by card association rules. Under card association
rules, we may be liable for the amount of the transaction even if the cardholder has made additional
purchases in the intervening period and funds are no longer available on the card at the time the
transaction is posted.
Overdrawn account balances are funded on our behalf by the bank that issued the overdrawn card.
We are responsible to this card issuing bank for any losses associated with these overdrafts. Overdrawn
account balances are therefore deemed to be our receivables due from cardholders. We maintain reserves
to cover the risk that we may not recover these receivables due from our cardholders, but our exposure
may increase above these reserves for a variety of reasons, including our failure to predict the actual
recovery rate accurately. To the extent we incur losses from overdrafts above our reserves or we determine
that it is necessary to increase our reserves substantially, our business, results of operations and financial
condition could be materially and adversely affected.
We face settlement risks from our retail distributors, which may increase during an eco-
nomic downturn.
The vast majority of our business is conducted through retail distributors that sell our products and
services to consumers at their store locations. Our retail distributors collect funds from the consumers who
purchase our products and services and then must remit these funds directly to accounts established for
the benefit of these consumers at the banks that issue our cards. The remittance of these funds by the
retail distributor takes on average three business days. If a retail distributor becomes insolvent, files for
bankruptcy, commits fraud or otherwise fails to remit proceeds to the card issuing bank from the sales of
our products and services, we are liable for any amounts owed to the card issuing bank. As of Decem-
ber 31, 2010, we had assets subject to settlement risk of $20.0 million. Given the possibility of recurring
volatility in global financial markets, the approaches we use to assess and monitor the creditworthiness of
our retail distributors may be inadequate, and we may be unable to detect and take steps to mitigate an
increased credit risk in a timely manner.
Economic downturns could result in settlement losses, whether or not directly related to our business.
We are not insured against these risks. Significant settlement losses could have a material adverse effect
on our business, results of operations and financial condition.
Future acquisitions or investments could disrupt our business and harm our financial
condition.
We are in the process of acquiring a bank holding company and its subsidiary commercial bank,
although we cannot guarantee when, if ever, this acquisition will be completed. In addition, we may pursue
other acquisitions or investments that we believe will help us to achieve our strategic objectives. The
process of integrating an acquired business, product or technology can create unforeseen operating
difficulties, expenditures and other challenges such as:
• increased regulatory and compliance requirements, including, if we complete our pending bank
acquisition, capital requirements applicable to us and our acquired subsidiary bank;
• implementation or remediation of controls, procedures and policies at the acquired company;
• diversion of management time and focus from operation of our then-existing business to acquisition
integration challenges;
• coordination of product, sales, marketing and program and systems management functions;
• transition of the acquired company’s users and customers onto our systems;
• retention and motivation of employees from the acquired company;
• integrating employees from the acquired company into our organization;
25