Green Dot 2012 Annual Report Download - page 32

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If we are unable to keep pace with the rapid technological developments in our industry and the larger
electronic payments industry necessary to continue providing our network acceptance members and
cardholders with new and innovative products and services, the use of our cards and other products and
services could decline.
The electronic payments industry is subject to rapid and significant technological changes, including continuing
advancements in the areas of radio frequency and proximity payment devices (such as contactless cards), e-commerce
and mobile commerce, among others. We cannot predict the effect of technological changes on our business. We rely
in part on third parties, including some of our competitors and potential competitors, for the development of, and access
to, new technologies. We expect that new services and technologies applicable to our industry will continue to emerge,
and these new services and technologies may be superior to, or render obsolete, the technologies we currently utilize
in our products and services. Additionally, we may make future investments in, or enter into strategic alliances to
develop, new technologies and services or to implement infrastructure change to further our strategic objectives,
strengthen our existing businesses and remain competitive. However, our ability to transition to new services and
technologies that we develop may be inhibited by a lack of industry-wide standards, by resistance from our retail
distributors, network acceptance members, third-party processors or consumers to these changes, or by the intellectual
property rights of third parties. Our future success will depend, in part, on our ability to develop new technologies and
adapt to technological changes and evolving industry standards. These initiatives are inherently risky, and they may
not be successful or may have an adverse effect on our business, financial condition and results of operations.
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, 2012, we had assets subject to settlement risk of $36.1 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.
Economic, political and other conditions may adversely affect trends in consumer spending.
The electronic payments industry, including the prepaid financial services segment within that industry, depends
heavily upon the overall level of consumer spending. The United States is currently facing challenging economic
conditions and if these conditions remain uncertain or deteriorate further, we may experience a reduction in the number
of our cards that are purchased or reloaded, the number of transactions involving our cards and the use of our reload
network and related services. A sustained reduction in the use of our products and related services, either as a result
of a general reduction in consumer spending or as a result of a disproportionate reduction in the use of card-based
payment systems, our business, results of operations and financial condition would be materially harmed.
Our business is dependent on the efficient and uninterrupted operation of computer network systems and
data centers.
Our ability to provide reliable service to cardholders and other network participants depends on the efficient and
uninterrupted operation of our computer network systems and data centers as well as those of our retail distributors,
network acceptance members and third-party processors. Our business involves movement of large sums of money,
processing of large numbers of transactions and management of the data necessary to do both. Our success depends
upon the efficient and error-free handling of the money that is collected by our retail distributors and remitted to network
acceptance members or the banks that issue our cards. We rely on the ability of our employees, systems and processes
and those of the banks that issue our cards, our retail distributors, our network acceptance members and third-party
processors to process and facilitate these transactions in an efficient, uninterrupted and error-free manner.
In the event of a breakdown, a catastrophic event (such as fire, natural disaster, power loss, telecommunications
failure or physical break-in), a security breach or malicious attack, an improper operation or any other event impacting
our systems or processes, or those of our vendors, or an improper action by our employees, agents or third-party
vendors, we could suffer financial loss, loss of customers, regulatory sanctions and damage to our reputation. The