Green Dot 2013 Annual Report Download - page 23

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materially intensifies, we may have to increase the incentives that we offer to our retail distributors and decrease the
prices of our products and services, any of which would likely adversely affect our operating results.
Our long-term success depends on our ability to compete effectively against existing and potential competitors
that seek to provide prepaid cards or other electronic payment products and services. If we fail to compete effectively
against any of the foregoing threats, our revenues, operating results, prospects for future growth and overall business
could be materially and adversely affected.
We make significant investments in products and services that may not be successful.
Our prospects for growth depend on our ability to innovate by offering new, and adding value to our existing, product
and service offerings and on our ability to effectively commercialize such innovations. We will continue to make significant
investments in research, development, and marketing for new products and services, including GoBank and other
mobile or banking products arising out of our acquisitions or otherwise. Investments in new products and services are
speculative. Commercial success depends on many factors, including innovativeness, price, the competitive
environment and effective distribution and marketing. If customers do not perceive our new offerings as providing
significant value, they may fail to accept our new products and services, which would negatively impact our operating
revenues. We may not achieve significant operating revenues from new product and service investments for a number
of years, if at all. Moreover, new products and services may not be profitable, and even if they are profitable, operating
margins for new products and services may not be as high as the margins we have experienced in the past.
Fraudulent and other illegal activity involving our products and services could lead to reputational damage
to us, reduce the use and acceptance of our cards and reload network, and may adversely affect our financial
position and results of operations.
Criminals are using increasingly sophisticated methods to engage in illegal activities involving prepaid cards, reload
products or cardholder information. These activities often include malicious social engineering schemes, where people
are asked to provide a prepaid card or reload product in order to obtain a loan or purchase goods or services. Illegal
activities may also include fraudulent payment or refund schemes and identity theft. We rely upon third parties for some
transaction processing services, which subjects us and our cardholders to risks related to the vulnerabilities of those
third parties. A single significant incident of fraud, or increases in the overall level of fraud, involving our cards and
other products and services, could result in reputational damage to us, which could reduce the use and acceptance
of our cards and other products and services, cause retail distributors or network acceptance members to cease doing
business with us or lead to greater regulation that would increase our compliance costs. Fraudulent activity could also
result in the imposition of regulatory sanctions, including significant monetary fines, which could adversely affect our
business, operating results and financial condition. Furthermore, we have accelerated the implementation of risk control
mechanisms that have made it more difficult for all customers, including legitimate customers, to obtain and use our
products and services. We believe it is likely that our risk control mechanisms will continue to adversely affect our new
card activations from legitimate customers for the foreseeable future and that our operating revenues, excluding stock-
based retailer incentive compensation, will be negatively impacted as a result.
As a bank holding company, we are subject to extensive and potentially changing regulation and may be
required to serve as a source of strength for Green Dot Bank, which may adversely affect our business, financial
position and results of operations.
As a bank holding company, we are subject to comprehensive supervision and examination by the Federal Reserve
Board and must comply with applicable regulations and other commitments we have agreed to, including financial
commitments in respect to minimum capital and leverage requirements. If we fail to comply with any of these
requirements, we may become subject to formal or informal enforcement actions, proceedings, or investigations, which
could result in regulatory orders, restrictions on our business operations or requirements to take corrective actions,
which may, individually or in the aggregate, affect our results of operations and restrict our ability to grow. If we fail to
comply with the applicable capital and leverage requirements, or if our subsidiary bank fails to comply with its applicable
capital and leverage commitments, the Federal Reserve Board may limit our ability to pay dividends, or if we become
less than adequately capitalized, require us to raise additional capital. In addition, as a bank holding company and a
financial holding company, we are generally prohibited from engaging, directly or indirectly, in any activities other than
those permissible for bank holding companies and financial holding companies. This restriction might limit our ability
to pursue future business opportunities which we might otherwise consider but which might fall outside the scope of
permissible activities.
Moreover, in response to the financial crisis of 2008 and the Wall Street Reform and Consumer Protection Act, or
the Dodd-Frank Act, banking supervisors in the United States continue to implement a variety of new requirements on
banking entities. Some of these requirements apply or will apply directly to us or to our subsidiary bank, while certain
requirements apply or will apply only to larger institutions. Although we cannot anticipate the final form of many of these