Green Dot 2013 Annual Report Download - page 43

36
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 these incentives, 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.
Reserve for Uncollectible Overdrawn Accounts
Cardholder accounts may become overdrawn as a result of maintenance fee assessments on our GPR cards or
from purchase transactions that we honor on GPR or gift cards, in each case in excess of the funds in the cardholder’s
account. We are responsible to the banks that issue our cards for any losses associated with these overdrawn balances.
Overdrawn account balances are therefore deemed to be our receivables due from cardholders, and we include them
as a component of accounts receivable, net, on our consolidated balance sheets. The banks that issue our cards fund
the overdrawn account balances on our behalf. We include our obligations to them on our consolidated balance sheets
as amounts due to card issuing banks for overdrawn accounts, a current liability, and we settle our obligations to them
based on the terms specified in their agreements with us. These settlement terms generally require us to settle on a
monthly basis or when the cardholder account is closed, depending on the card issuing bank.
We generally recover overdrawn account balances from those GPR cardholders that perform a reload transaction.
In addition, we recover some overdrawn account balances related to purchase transaction through enforcement of
payment network rules, which allow us to recover the amounts from the merchant where the purchase transaction was
conducted. However, we are exposed to losses from any unrecovered overdrawn account balances. The probability
of recovering these amounts is primarily related to the number of days that have elapsed since an account had activity,
such as a purchase, ATM transaction or fee assessment. Generally, we recover 50-60% of overdrawn account balances
in accounts that have had activity in the last 30 days, less than 15% in accounts that have had activity in the last 30
to 60 days, and less than 10% when more than 60 days have elapsed.
We establish a reserve for uncollectible overdrawn accounts for maintenance fees we assess and purchase
transactions we honor, in each case in excess of a cardholder’s account balance. We classify overdrawn accounts
into age groups based on the number of days since the account last had activity. We then calculate a reserve factor
for each age group based on the average recovery rate for the most recent six months. These factors are applied to
these age groups to estimate our overall reserve. We rely on these historical rates because they have remained
relatively consistent for several years. When more than 90 days have passed without any activity in an account, we
consider recovery to be remote and charge off the full amount of the overdrawn account balance against the reserve
for uncollectible overdrawn accounts. Our actual recovery rates and related estimates thereof may change in the future
in response to factors such as the pricing of reloads and new cards and the availability of substitute products.
Cardholder accounts overdrawn due to maintenance fee assessments represented approximately 96% of our total
overdrawn account balances due from cardholders for the year ended December 31, 2013. We charge our GPR
cardholder accounts maintenance fees on a monthly basis pursuant to the terms and conditions in the applicable
cardholder agreements. Although cardholder accounts become inactive or overdrawn, we continue to provide
cardholders the ongoing functionality of our GPR cards, which allows them to reload and use their cards at any time.
As a result, we continue to assess a maintenance fee until a cardholder account becomes overdrawn by an amount
equal to one maintenance fee, currently $3.00 for the Walmart MoneyCard and $5.95 for our Green Dot-branded GPR
cards. We recognize the fees ratably over the month for which they are assessed, net of the related provision for
uncollectible overdrawn accounts, as a component of card revenues and other fees in our consolidated statements of
operations.
We include our provision for uncollectible overdrawn accounts related to purchase transactions in other general
and administrative expenses in our consolidated statements of operations.
Employee Stock-Based Compensation
We record employee stock-based compensation expense using the fair value method of accounting. For stock
options and stock purchases under our employee stock purchase plan, we base compensation expense on fair values
estimated at the grant date using the Black-Scholes option-pricing model. For stock awards, including restricted stock
units, we base compensation expense on the fair value of our Class A common stock at the grant date. We recognize
compensation expense for awards with only service conditions that have graded vesting schedules on a straight-line
basis over the vesting period of the award. Vesting is based upon continued service to our company.
We measure the fair value of equity instruments issued to non-employees as of the earlier of the date a performance
commitment has been reached by the counterparty or the date performance is completed by the counterparty. We
determine the fair value using the Black-Scholes option-pricing model or the fair value of our Class A common stock,
as applicable, and recognize related expense in the same periods that the goods or services are received.