Green Dot Corporation (GDOT) (~$715MM market capitalization) is one of the original fintech firms targeting the underbanked population in the United States who primarily live paycheck-to-paycheck. They provide accessible financial products like prepaid debit cards, secured credit cards, money processing services, tax refund processing services both under their own name and white labeled with partners (Walmart, Apple, Amazon, Intuit, Jackson Hewitt, PLS, Uber, etc). The end consumer can access their money in the increasingly non-cash world without a traditional bank account. Green Dot provides back-office banking services for their own consumer services and via third party partners through their bank, Green Dot Bank.
Green Dot's history has a lot of twists and turns I'm going to gloss over (it has been a poor investment since its 2011 IPO), however back in November, Green Dot announced they were entering into a transaction where they are separating the fintech business from the bank:
The fintech business that consumers are familiar with is going to a firm called Smith Ventures. Bill Smith, founder of Smith Ventures, is a serial entrepreneur who had previously founded Insight Card Services, which he sold to GDOT in 2014 and Shipt which he sold to Target (TGT) in 2017 for $500MM. After those transactions, in 2017 he helped fund/found CommerceOne (currently privately held), a de novo bank based in Alabama, whose leadership team came from First Partners Bank after it was acquired by Progress Bank (which merged with UCBI in 2023) that same year. Smith is on the board of CommerceOne and presumably the architect behind this whole transaction, there are few articles floating around about him, he's a bit of a rags-to-riches story and seems to have a successful track record at a relatively young age of 40.
Pre-GDOT merger, CommerceOne appears to be a well run, albeit small, C&I focused community bank with an admirable efficiency ratio in the low 40s (question will be how well that scales). Credit issues have been minimal since the bank started operations, ROE is ~14%, ROA is 1.4%, cost of funds is a little high at 2.99%, but the GDOT acquisition will help drive that number down considerably.
The
M&A deck lays out the bull case pretty nicely, the proforma GDOT/CommerceOne's peer group trades at pretty heady multiples as the Bank-as-a-Service ("BaaS") business model provides the dual advantage of cheap deposits and significant non-interest (fee) income. Peers like Pathward Financial (CASH) (Upstart and MoneyLion are partners) and The Bancorp (TBBK) (Chime is a partner) trade for 3.0x and 4.0x tangible book value respectively, including a wider peer set, CommerceOne outlines the potential TBV multiples the new bank could trade for:
With GDOT trading at $12.28/share, I have the stub value to the BankCo trading just under 70% of tangible book value, well below where similar (but more established) peers trade.
Bank mergers can be challenging, I imagine this one will be particularly so since pre-GDOT CommerceOne is acquiring a bank several times its size, has mostly a remote workforce no where near Birmingham and features integrating a completely new business model. Other risks associated with proforma CommerceOne include exposure to Green Dot (7-year initial deal), Apple and WalMart concentration risk at the fintech level and regulatory risks associated with serving this customer base (although the CPFB has been significantly neutered). I find this to be an attractive setup, the deal is expected to close mid-2026, it'll likely take another year or two for the bank to trade more inline with peers but has significant upside.
Disclosure: I own shares of GDOT
