Green Dot 2012 Annual Report Download - page 72

GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
62
Note 2—Summary of Significant Accounting Policies (continued)
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the overall
fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination
of fair value requires significant management judgment or estimation. The fair value for such assets and liabilities is
generally determined using pricing models, market comparables, discounted cash flow methodologies or similar
techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. This category
generally includes certain private equity investments and certain asset-backed securities
Revenue Recognition
Our operating revenues consist of card revenues and other fees, cash transfer revenues and interchange revenues.
We recognize revenue when the price is fixed or determinable, persuasive evidence of an arrangement exists, the
product is sold or the service is performed, and collectability of the resulting receivable is reasonably assured.
Card revenues and other fees consist of monthly maintenance fees, ATM fees, new card fees and other revenues.
We charge maintenance fees on a monthly basis pursuant to the terms and conditions in the applicable cardholder
agreements. We recognize monthly maintenance fees ratably over the month for which they are assessed. We charge
ATM fees to cardholders when they withdraw money at certain ATMs in accordance with the terms and conditions in
our cardholder agreements. We recognize ATM fees when the withdrawal is made by the cardholder, which is the
same time our service is completed and the fees are assessed. We charge new card fees when a consumer purchases
a new card in a retail store. We defer and recognize new card fee revenues on a straight-line basis over our average
card lifetime, which is currently seven months for our GPR cards and six months for our gift cards. We determine the
average card lifetime based on our recent historical data for comparable products. We measure card lifetime for our
GPR cards as the period of time, inclusive of reload activity, between sale (or activation) of the card and the date of
the last positive balance. We measure the card lifetime for our gift cards as the redemption period during which
cardholders perform the substantial majority of their transactions. We reassess average card lifetime quarterly. We
report the unearned portion of new card fees as a component of deferred revenue in our consolidated balance sheets.
Other revenues consist primarily of fees associated with optional products or services, which we generally offer to
consumers during the card activation process. Optional products and services include providing a second card for an
account, expediting delivery of the personalized debit card that replaces the temporary card obtained at the retail store,
and upgrading a cardholder account to one of our upgrade programs. We generally recognize revenue related to
optional products and services when the underlying services are completed, but we treat revenues related to our
upgrade programs in a manner similar to new card fees and monthly maintenance fees.
We generate cash transfer revenues when consumers purchase our cash transfer products (reload services) in
a retail store. We recognize these revenues when the cash transfer transactions are completed, generally within two
business days from the time of sale of these products.
We earn interchange revenues from fees remitted by the merchant’s bank, which are based on rates established
by the payment networks, such as Visa and MasterCard, when cardholders make purchase transactions using our
cards. We recognize interchange revenues as these transactions occur.
We report our different types of revenues on a gross or net basis based on our assessment of whether we act as
a principal or an agent in the transaction. To the extent we act as a principal in the transaction, we report revenues on
a gross basis. In concluding whether or not we act as a principal or an agent, we evaluate whether we have the
substantial risks and rewards under the terms of the revenue-generating arrangements, whether we are the party
responsible for fulfillment of the services purchased by the cardholders, and other factors. For all of our significant
revenue-generating arrangements, including GPR and gift cards, we record revenues on a gross basis.
Generally, customers have limited rights to a refund of a new card fee or a cash transfer fee. We have elected to
recognize revenues prior to the expiration of the refund period, but reduce revenues by the amount of expected refunds,
which we estimate based on actual historical refunds.
On occasion, we enter into incentive agreements with our retail distributors and offer incentives to customers
designed to increase product acceptance and sales volume. We record incentive payments, including the issuance
of equity instruments, as a reduction of revenues and recognize them over the period the related revenues are
recognized or as services are rendered, as applicable.