Dive Brief:

• Green Dot, the fintech which processes money transfers, and also considers itself a "branchless bank," plans to buy Republic Bank's tax refund processing unit for $165 million in cash in a deal the companies expect to close in the fourth quarter of this year, they said jointly in a press release.
• That combination would cement Green Dot's place as one of the biggest payment processors of U.S. tax refunds, according to a report from financial services firm William Blair regarding the proposed purchase. The company earns revenue when it processes consumers' tax refunds on behalf of firms that prepare consumer tax returns.
• Last year, Green Dot processed about 12.5 million tax refunds, up 4% from about 12 million in 2019, according to its annual filing with the Securities and Exchange Commission (SEC).

Dive Insight:

Pasadena-based Green Dot, founded in 1999, first made its big splash in the tax refund processing business seven years ago, when it bought Santa Barbara Tax Products Group for $320 million in 2014. At the time, the company said it was buying "America's Largest Consumer Tax Refund Transaction Processor."

On completing that deal then Green Dot Founder Chairman and CEO Steve Streit said: "We believe this transaction will provide meaningful earnings diversification and margin expansion, as well as add a new and robust distribution platform for Green Dot's products and services." His CEO successor Dan Henry, appointed last year, is following that lead, but he faced financial headwinds last year.

Last year, Green Dot's net income dropped 77% to $23 million due to increased costs related to the impact of the deadly COVID-19 pandemic, even as revenue climbed 13% to $1.25 billion, the company said in its annual filing with the SEC.

While Green Dot's acquisition of the Republic Bank unit is smaller, it will tighten Green Dot's grip on the market for processing U.S. consumers' tax payment services.

"We believe this acquisition makes Green Dot one of the clear leaders in the space as it is one of the largest processors of tax refund disbursements in the United States," analysts at financial services firm William Blair said in a Friday report on the deal after it was announced that day. (William Blair has provided financial services to Green Dot in the past.)

Green Dot Spokesman Whit Chapman declined to say whether the company considers itself the largest processor of U.S. tax refunds today, or what percentage of U.S. refunds Green Dot processes.

The company has sought to carve out a niche in providing financial services to low and moderate-income Americans, and preparing their taxes reinforces such ties. In purchasing the Santa Barbara group, Green Dot acquired relationships to four of the six top U.S. consumer tax preparation companies, according to the acquiree's law firm Willkie Farr & Gallagher, which cited the number of tax preparation firms, but didn't name them. At that time, the Santa Barbara group processed about 11 million U.S. tax filers for $32 billion in refunds.

At 12.5 million tax refunds processed last year, Green Dot's tax refund business has grown about 14% since that earlier 2014 acquisition. Green Dot's plan has been to cross-sell other services to the tax refund customers. The company also provides debit, prepaid, checking, credit and payroll cards.

The "money movement services" segment of Green Dot's business includes the majority of Green Dot's tax refund services business, according to the William Blair report. That Green Dot segment posted revenue of $288 million and $124 million of adjusted EBITDA in 2020, William Blair said.

William Blair considers the latest acquisition "low risk" and "highly synergistic" with the 2014 Santa Barbara group purchase, according to the report.