Green Dot 2015 Annual Report Download - page 71

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Note 2—Summary of Significant Accounting Policies (continued)
Our processing and settlement services consist of cash transfer revenues and tax refund processing service
revenues. 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 tax refund processing service revenues when a
customer of a third party tax preparation company chooses to pay their tax preparation fee through the use of our tax
refund processing services. We recognize tax refund processing service revenues as we remit tax return proceeds to
the taxpayer.
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, among other factors. For all of our significant
revenue-generating arrangements, including GPR and gift cards, we record revenues on a gross basis with the
exception of our tax refund processing service revenues which are recorded on a net 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.
Sales and Marketing Expenses
Sales and marketing expenses primarily consist of sales commissions, advertising and marketing expenses, and
the costs of manufacturing and distributing card packages, placards, promotional materials to our retail distributors’
locations and personalized GPR cards to consumers who have activated their cards.
We pay our retail distributors and brokers commissions based on sales of our prepaid debit cards and cash transfer
products in their stores. We defer and expense commissions related to new cards sales ratably over the average card
lifetime, which is currently five months for both our GPR and our gift cards. Absent a new card fee, we expense the
related commissions immediately. We expense commissions related to cash transfer products when the cash transfer
transactions are completed. We expense costs for the production of advertising as incurred. The cost of media
advertising is expensed when the advertising first takes place. We record the costs associated with card packages
and placards as prepaid expenses, and we record the costs associated with personalized GPR cards as deferred
expenses. We recognize the prepaid cost of card packages and placards over the related sales period, and we amortize
the deferred cost of personalized GPR cards, when activated, over the average card lifetime.
Included in sales and marketing expenses are advertising and marketing expenses of $10.1 million, $6.8 million
and $10.4 million and shipping and handling costs of $2.8 million, $3.1 million and $4.0 million for the years ended
December 31, 2015, 2014 and 2013, respectively. Also included in sales and marketing expenses were liabilities that
we incurred for use tax to various states related to purchases of materials since we do not charge sales tax to customers
when new cards or cash transfer transactions are purchased.
Employee Stock-Based Compensation
We record employee stock-based compensation expense based on the grant-date fair value. For stock options
and stock purchases under our employee stock purchase plan, or ESPP, 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 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.