Green Dot 2011 Annual Report Download - page 31

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Our remaining overdraft exposure arises primarily from late-posting. A late-post occurs when a merchant posts a
transaction within a payment network-permitted timeframe but subsequent to our release 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 economic 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 December 31, 2011, we had assets subject to settlement risk of $27.4 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.
From time to time, we may pursue 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;
• 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 of employees from the acquired company;
• integrating employees from the acquired company into our organization;
• integration of the acquired company’s accounting, information management, human resource and other
administrative systems and operations generally with ours;
• liability for activities of the acquired company prior to the acquisition, including violations of law, commercial
disputes, and tax and other known and unknown liabilities; and
• litigation or other claims in connection with the acquired company, including claims brought by terminated
employees, customers, former stockholders or other third parties.
If we are unable to address these difficulties and challenges or other problems encountered in connection with
our recent bank acquisition or any future acquisition or investment, we might not realize the anticipated benefits of that
acquisition or investment, we might incur unanticipated liabilities or we might otherwise suffer harm to our business
generally.
To the extent we pay the consideration for any future acquisitions or investments in cash, it would reduce the
amount of cash available to us for other purposes. Future acquisitions or investments could also result in dilutive
issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, or impairment