Green Dot 2013 Annual Report Download - page 69

GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
62
Note 2—Summary of Significant Accounting Policies (continued)
Fair Value
Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date.
We determine the fair values of our financial instruments based on the fair value hierarchy established under
applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The following describes the three-level hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities
include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as
certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted
prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities
with quoted prices that are traded less frequently than exchange-traded instruments. This category generally includes
U.S. government and agency mortgage-backed fixed income securities and corporate fixed income securities
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.