Green Dot 2012 Annual Report Download - page 43

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Cash Transfer Revenues — We earn cash transfer revenues when consumers purchase and use a MoneyPak or
fund their cards through a POS swipe reload transaction in a retail store. Our aggregate cash transfer revenues vary
based upon the total number of MoneyPak and POS swipe reload transactions and the average price per MoneyPak
or POS swipe reload transaction. The average price per MoneyPak or POS swipe reload transaction depends upon
the relative numbers of cash transfer sales at our different retail distributors and on the mix of MoneyPak and POS
swipe reload transactions at certain retailers that have different fees for the two types of reload transactions.
Interchange Revenues — We earn interchange revenues from fees remitted by the merchant’s bank, which are
based on rates established by the payment networks, when customers make purchase transactions using our products.
Our aggregate interchange revenues vary based primarily on the number of active cards in our portfolio, the average
transactional volume of the active cards in our portfolio and on the mix of cardholder purchases between those using
signature identification technologies and those using personal identification numbers.
Stock-based retailer incentive compensation — In May 2010, we issued to Walmart 2,208,552 shares of our Class A
common stock, subject to our right to repurchase them at $0.01 per share upon a qualifying termination of our prepaid
card program agreement with Walmart and GE Capital Retail Bank, formerly GE Money Bank. We recognize each
month the fair value of the 36,810 shares issued to Walmart for which our right to repurchase has lapsed using the
then-current fair market value of our Class A common stock (and we would be required to recognize the fair value of
all shares still subject to repurchase if there were an early expiration of our right to repurchase, which could occur if
we experienced certain changes in our control or under certain other limited circumstances, such as a termination of
our commercial agreement with Walmart and GE Capital Retail Bank). We record the fair value recognized as stock-
based retailer incentive compensation, a contra-revenue component of our total operating revenues.
Operating Expenses
We classify our operating expenses into the following four categories:
Sales and Marketing Expenses — Sales and marketing expenses consist primarily of the sales commissions we
pay to our retail distributors and brokers, advertising and marketing expenses, and the costs of manufacturing and
distributing card packages, placards and promotional materials to our retail distributors and personalized GPR cards
to consumers who have activated their cards. We generally establish sales commission percentages in long-term
distribution agreements with our retail distributors, and aggregate sales commissions are determined by the number
of prepaid cards and cash transfers sold at their respective retail stores and, in certain cases, by the revenue generated
from the ongoing use of those cards. We incur advertising and marketing expenses for television, online and in-store
promotions. Advertising and marketing expenses are recognized as incurred and typically deliver a benefit over an
extended period of time. For this reason, these expenses do not always track changes in our operating revenues. Our
manufacturing and distribution costs vary primarily based on the number of GPR cards activated.
Compensation and Benefits Expenses — Compensation and benefits expenses represent the compensation and
benefits that we provide to our employees and the payments we make to third-party contractors. While we have an
in-house customer service function, we employ third-party contractors to conduct all call center operations, handle
routine customer service inquiries and provide consulting support in the area of IT operations and elsewhere.
Compensation and benefits expenses associated with our customer service and loss management functions generally
vary in line with the size of our active card portfolio, while the expenses associated with other functions do not.
Processing Expenses — Processing expenses consist primarily of the fees charged to us by the payment networks,
which process transactions for us, the third-party card processor that maintains the records of our customers' accounts
and processes transaction authorizations and postings for us, and the third-party banks that issue our prepaid cards.
These costs generally vary based on the total number of active cards in our portfolio and gross dollar volume.
Other General and Administrative Expenses — Other general and administrative expenses consist primarily of
professional service fees, telephone and communication costs, depreciation and amortization of our property and
equipment, transaction losses (losses from customer disputed transactions, unrecovered customer purchase
transaction overdrafts and fraud), rent and utilities, and insurance. We incur telephone and communication costs
primarily from customers contacting us through our toll-free telephone numbers. These costs vary with the total number
of active cards in our portfolio as do losses from customer disputed transactions, unrecovered customer purchase
transaction overdrafts and fraud. Costs associated with professional services, depreciation and amortization of our
property and equipment, and rent and utilities vary based upon our investment in infrastructure, business development,
risk management and internal controls and are generally not correlated with our operating revenues or other transaction
metrics.