George Gresham: Yes. I’m going to stay away from your invitation to give any quantitative perspective on that although I will just make some observations about each of our channels in a qualitative way. We have our Rapid! PayCard business. It’s a great business, very well managed. It has been a consistent growth engine for the Company, understanding we had a particular category of that business that pulled back this year. We think that’s temporary. And in addition to the standard Rapid! PayCard distribution, we have the channel, we also have the emergence of EWA. And as I’ve mentioned in prior calls, we’re extremely optimistic and enthusiastic about that product category. So I feel very, very good about that. In our direct-to-consumer business, we just mentioned GO2bank.
We’ve not quite completely transitioned through the attrition of legacy brands, so that’s inevitable in the very near term. And GO2bank, both last quarter, this quarter, we expect next quarter is growing very nicely. The BaaS business — many, many, many opportunities to be very successful within that business in an immense market, we have highly differentiated capabilities to serve that market, and we think that’s going to serve us well in a growth perspective. And to Jess’s comments, we’ve migrated off of the platform and we’ll grow through the declines that we’ve experienced in that business. Our tax processing business, CPG have remaining important opportunities to the margins and to sell incremental services to tens of thousands of small businesses micro businesses, one, two, three person employee businesses in just a very rich set of potential product offerings within that business.
And then we have retail business, retail business declining. I’m not going to sit here and say, I have unbound optimism that this product procured off of the rack in a retail location is something that’s going to be a growth engine for us. We do think at a level at some point in the relative near future. But what’s important about the retail business to us is that we have an embedded set of relationships with the nation’s largest retailers all if we want to deepen their relationships with their consumers, particularly those consumers who are using today their loyalty and rewards programs. And so the future of the retail business is to embed financial solutions into those reward programs. So that’s a little further down the road and a little bit more complicated from exceptional perspective.
But even that business, given our existing relationship has a lot of opportunities for us. So I know I didn’t directly give you numbers that you might have hoped for, but that’s kind of the way I think of each of our channels.
Operator: The next question comes from Michael Perito with KBW.
Michael Perito: I wanted to kind of stick on the last topic for a second here. As you guys were talking, I kind of was just looking at your segment revenues over the last few years, you’ve kind of morphed I mean, I think back in ’21, it was like 50% consumer, 1/3 B2B, 15% Money Movement. The 15% has been pretty steady on contribution, but now B2B is about 50 consumers about 1/3. Is that indicative of obviously, where you guys are investing. But as we think about kind of where that trends from here and all your shaping commentary today, I mean, is the B2B, is that where you guys are seeing the best kind of margin and pricing opportunities. I mean it would seem to dovetail a little off the regulatory comment too. I mean, as that gets more onerous, I mean, is pricing in back gotten better or a little — at least a little bit less competitive.
I’m just kind of curious in terms of like allocating capital to the most profitable opportunities, how you guys are thinking about that?
George Gresham: Thanks, Michael. First, on your comps, just to clarify, there’s two kind of important aspects that I would highlight on your comp one is, obviously, over the last two years, you went from — well, I guess, if I went back four years, you’d go from a pre-COVID to COVID to substantial federal stimulus that impacted the business comp and then the withdrawing of that comp. So that’s something always to keep in mind. And then, of course, we have a singular BaaS partner on the revenue side that makes up a significant percentage of our revenue, and I don’t know the page number in the 10-Q, but we disclose it in there, and you can look at that later. So, that’s kind of a — in that particular contract has — you think of it as a relatively fixed margin not fixed percentage, fixed dollar margin.
So that’s a complicating factor when you think about the but now to the substance of your question, when we think about account growth as a leading driving metric for our business, we do and will continue to invest capital in our direct-to-consumer business, our GO2bank product. That is absolutely going to be a core of what we do. We’re going to continue that. That’s going to remain unchanged. And to the extent we develop opportunities to increase that capital into that business, we will on a cautious basis. Now the nuances of that capital implication are that, of course, when you invest in our direct-to-consumer business, that capital investment directly hits your P&L at the moment, it’s incurred. And so that creates some constraints with respect to the capital allocation.
And important, when you put a lot of capital into direct-to-consumer in a particular product set, it can in and of itself cause inflation in the cost of acquisition. And so we’re very cautious about those variables. And so we will continue to invest in that on a steady basis, but I would not expect a dramatic change in that investment. So, we have our BaaS business, which when we win a BaaS opportunity, obviously, these clients have a large embedded customer set that then is marketed into that set of customers by oftentimes, the BaaS partners sometimes with our help, and so if we acquire the right type of BaaS partners, we’re looking at acquiring account portfolios of 100,000, 200,000, 300,000 type accounts. And — if you think of the marketing element associated with that partnership, they come through as commissions and we only incur the marketing cost when we sell a product.
And so there’s various advantages to that market. Lastly, I will leave you with the concept that if we have a set of platforms to deliver our services. We have a banking platform. We are the Green Dot works platform. We have a product platform. We have a technology platform. And each of these platforms are intended over time to serve all of our distribution channels, irrespective of the capital allocation. So we allocate capital into those platforms, the marginal capital to go to market in one of distribution channels to win a client is relatively small. So if we do a good job in building these platforms, we’ll have scalable operations and our marginal capital to exploit the channels we’re already in, is there for us. But I expect that we will continue to increase — will increase in the future, both our investment in our platforms and our distribution and capabilities and competencies and selling approach in the BaaS channel in particular.
But I don’t mean that to mean that we’re going to start the rest of our channels.
Michael Perito: That’s helpful perspective. Second question for me, not to kind of go back here because I know you guys said you’re not providing ’24 guide yet, but maybe less on the revenue side. Just on the expense side just curious because it sounds like there are some expense tailwinds possibly as you come out of the core conversion related to that. But I imagine there’s also kind of redeployment maybe of some headcount in other areas whether that involves maybe hiring some new people, even though it’s net-net, not a lot of FTE adds. Obviously, there’s still the regulatory piece, I imagine kind of sustained for the foreseeable future at an elevated run rate. But just curious if you’re willing to provide any context around some of the things we should be thinking about for expense growth in ’24, just coming out of the conversion based on what you’re seeing today?
George Gresham: I’ve been talking so much, I’ll let Jess take a swing at that one.
Jess Unruh: Sure, sounds good. So several quarters ago, we talked about savings associated with the conversion. I would say those are largely on tax, on track, starting to realize the savings now the processor conversion is complete. So I expect that the year-over-year benefit in 2024 would be something less than the annualized savings because we’ll grow over savings achieved this year. But nonetheless, that will help margins, particularly in the consumer segment and the — and to a lesser extent, the B2B Services segment, but will impact both favorably. So that was a huge undertaking for us because it is a material benefit to margins long term. We have other long-range planning activities. We still use some third-party processors, for example, in our Rapid! PayCard business.
There’s an opportunity to take out that third-party processor that has material savings for us. So there’s several things underway that would enhance margins over the long term. On the B2B services, George mentioned, we have a particular contract that has a fixed structure. So as long as that remains, that will have a weigh on overall margins, but if you exclude that particular partner, the rest of the BaaS partnerships have strong margins. So — and of course, our money movement business, particularly in the TPG business really, really strong margins. And even in our money processing, we call it the Green Dot Network, has really, really strong margins as those grow. And then lastly, I would say, in the PayCard business, EWA is also, I would say, has a margin in excess of what a traditional PayCard business would have.
I don’t know George, anything you want to add?
George Gresham: I’d just add, when we talk about savings from the conversion of the processing conversion, and we’ve quantified that in prior calls, that the savings has two elements to it. It has the OpEx savings because we have now a much lower cost structure per unit of processing. And we invested considerable capital in 2023 and ’22 with respect to that, activity in preparation for and building out the new platform. And so, we expect to have an opportunity to reduce our capital consumption and to improve our margins, and thereby, our primary focus will be improving free cash flow as a result of those efforts. And I’ll just leave you with the appreciation that we’re extremely focused over the long term on building a scalable enterprise that has marginal growth from the incremental dollar of revenue on our EBITDA and other earnings metrics. So I’ll pause there, and hopefully, we can help you with your question.
