Earnings Call Transcript - GDOT Q3 2023

Operator, Operator

Good day, and welcome to the Green Dot Corporation Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tim Willi, Senior Vice President, Finance and Corporate Development. Please go ahead.

Tim Willi, Senior Vice President, Finance and Corporate Development

Thank you, and good afternoon, everyone. Today, we are discussing Green Dot's third quarter 2023 financial and operating results. Following our remarks, we'll open the call for your questions. Our most recent earnings release and the call webcast can be found at ir.greendot.com. As a reminder, our comments may include forward-looking statements and expectations regarding future results and performance. Please refer to the cautionary language in the earnings release and in Green Dot's filings with the Securities and Exchange Commission, including our most recent Form 10-K and 10-Q for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will refer to our financial measures that do not conform with generally accepted accounting principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today will be on a non-GAAP basis. Information may be calculated differently than similar non-GAAP data presented by other companies. Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's press release. The content of this call is the property of the Green Dot Corporation and is subject to copyright protection. Now I'd like to turn the call over to George.

George Gresham, CEO

Good afternoon, everyone, and thank you for joining our third quarter 2023 earnings call. Jess will provide an in-depth review of our financial results, but before passing it to him, I'd like to share my perspective on the quarter and what drove our performance overall. Our non-GAAP revenue was up about 3% compared to the same quarter last year, while both non-GAAP and GAAP earnings metrics declined. Though we made progress on our major strategic goals, these results were below our internal projections due to a variety of transitory factors. We have had a lot going on this year. We deconverted several partners and sunset legacy brands within our direct-to-consumer business to invest in and focus on GO2bank. Additionally, we were impacted by increasing interest rates due to partner interest sharing arrangements negotiated in a zero-interest environment. As we completed the final stage of our processor conversions, we encountered challenges that impacted revenue growth, and we experienced increases in transaction losses arising from customer disputes. These latter issues are transitory in nature but had a meaningful negative impact on the quarter and our projections for the balance of the year. Jess will discuss their impacts in more detail shortly. Lastly, we have increased and will continue increasing investments to enhance our regulatory and compliance infrastructure. Now let me update you on our strategic priorities. First, I am pleased to confirm we have completed our processor conversions. The entire company has been focused on ensuring we complete this project, which has been a consuming multiyear journey. I want to thank everybody involved in helping us accomplish this goal. Our move to our new card management system makes us a more nimble and efficient enterprise. While we still have important post-conversion cleanup work remaining, the completion of the conversions now allows us to redirect our focus and energy to other priorities and opportunities, including additional enhancements to our technology and product offerings, compliance infrastructure, and of course, growth. Second, business development remains a key priority. With the processor conversions completed, this is an exciting year where we are redirecting our resources and focus. We've been very busy over the past several months signing and launching new partners. You may recall on our last earnings call, we announced Ceridian as a new partner in the BaaS channel and signed PLS as a key partner for the consumer segment. During the third quarter, we launched Credibly, further extending our reach to serve small and micro businesses, and we announced Stockpile as a new partner, which we will be developing and supporting a DDA account for their investing platform customers. Additionally, I just returned from Money20/20, where our teams met with current partners and spent quite a bit of time with prospective partners, and those discussions reinforce my confidence about our opportunity for significant growth as the embedded finance market continues to evolve and expand. Finally, we are making significant strides in evolving our workforce to maintain a dedicated focus on managing costs and allocating capital with a concrete and thoughtful approach. Our non-processing expenses were down 5% year-over-year and are down 7% year-to-date as the team continues driving efficiencies. We will increasingly realize cost savings from our platform conversions as we move through the fourth quarter of 2024. We will remain fully focused on driving efficiency investments, ensuring we are maximizing ROI as we capitalize on growth opportunities. Complementing this focus on efficiency is also ensuring that we are diligent and thoughtful in how we allocate our capital. We will continue to invest in areas like product and business development as well as our regulatory and compliance infrastructure to better serve and support our customers. I firmly believe it is critical for Green Dot to set the standard and be recognized as a trusted leader in both our business and regulatory partners as the embedded finance matures and evolves. I believe if it's done right, it will be a competitive advantage. In summary, we are making important strides in our journey and accomplished a significant milestone with the completion of our platform conversion. We are still in the middle innings with plenty to do. I want to thank all of our team members, partners, and investors for coming along with us as we execute this strategy. Now let me hand it over to Jess.

Jess Unruh, CFO

Thanks, George, and good afternoon, everyone. I'll walk you through our key financial highlights, and then I'll provide color on our updated guidance for the year. Our GAAP and non-GAAP revenue for the quarter each grew 3% year-over-year, while adjusted EBITDA and non-GAAP EPS were down year-over-year. As George mentioned in his comments, we made solid progress toward our operational goals; however, the quarter was below our expectations for several reasons. First, we completed our processor conversion with the final account migrations in Q3. During that process, we encountered challenges that had a negative impact on revenue and costs. We also had an increase in transaction losses associated with customer disputes. Like George, I believe both challenges are transitory. That said, we've been aggressively working to remediate these issues and continue to see steady progress, and believe that many of these issues will be behind us as we exit the year. Lastly, we incurred incremental expenses in Q3 in connection with our ongoing investment in our anti-money laundering program, including improvements to our compliance controls, policies, and procedures. As mentioned in previous earnings calls and SEC filings, we expect to continue to invest in these programs to ensure we have market-leading compliance programs and to mitigate and reduce our fraud losses over the long term. With that high-level context to our quarter results, I'll provide color on each of our segments. First is our consumer segment. As you know, our consumer segment is comprised of both our retail and direct-to-consumer distribution channels. As I've discussed on prior calls, this segment is impacted by changing consumer patterns within retail, the nonrenewal of the retail program, and our dedicated focus on our GO2bank brand in our direct-to-consumer model at the expense of legacy brands that are now in runoff. While our retail channel is impacted by secular changes and their nonrenewal program, we are taking steps to reposition this business. Specifically, we are actively working with our retail partners on strategies that encompass a wide range of embedded account and payment experiences that are designed to help our retail partners continue to build enduring and loyal customer relationships through digital financial experiences, not just products on shelves. While we are making investments in digital product development, we are also intensely focused on making our cost structure in retail more efficient. In our direct-to-consumer business, we continue to fully commit our marketing spend to supporting our GO2bank brand. And as a result, we have deliberately put legacy brands such as Rush, AccountNow, and others into runoff. As mentioned in previous calls, we sunset some brands in the second quarter as we continue to move through our processor conversions. We had success converting a portion of those accounts to GO2bank. However, as expected, many did not convert, and attrition of these legacy brands accelerated in Q2. We saw the full quarter impact of that attrition in Q3. As a result of the strong growth in GO2bank, combined with the attrition of the legacy brands over the last two years, GO2bank now represents a substantial majority of the active accounts in the direct consumer channel, and its growth rate will have a more pronounced impact as we move forward. In the third quarter, GO2bank continued to have strong year-over-year growth with direct deposit accounts up just over 20%, which resulted in strong growth in revenue per account. With that context in place, let me give color on the segment's performance during the quarter. Segment revenue was down 13%, driven by the year-over-year decline in active accounts. Revenue in our retail channel was down approximately 10% year-over-year, so I would note that there were some modest timing benefits to revenue during the quarter, and I would not view this rate of decline as the core performance of the business, which I estimate was probably declining at a rate in the mid-teens. However, I remain confident that the rate of decline is moderating. From my earlier comments, the direct channel saw a revenue decline of approximately 20%, an acceleration from the prior quarter due to the brands we sunset in Q2. It's worth pointing out that excluding the impact of the products that were sunset in the direct channel, we believe the rate of decline in direct deposit accounts continues to moderate. This is fueled in part by some moderating declines in retail but also in the direct channel as GO2bank builds momentum. Direct deposit accounts are about one-fourth of our total accounts in the segment, and these accounts are more engaged with higher volume and revenues than non-direct deposit accounts. Overall, revenue per account continues to improve slightly despite some headwinds related to the conversion as we drive deeper engagement rates, particularly with GO2bank, helping to offset the attrition in legacy portfolios. As I've said many times, this is an evolution, and we are encouraged by what we are seeing from GO2bank and the impact this is having on the direct channel and the increased likelihood that can help drive continued moderation in the rate of decline from the overall consumer segment, and I believe we're moving closer to an inflection point. Segment profit was down year-over-year by 20% due to the decline in revenue from the headwinds discussed as well as the impact on expenses from challenges around our conversion and transaction losses that I mentioned earlier, partially offset by a modest decline in processing costs as we moved away from our third-party processor with our final account migration. In the B2B segment, which consists of our BaaS and Rapid! PayCard channels, aggregate revenue growth of 26% remains driven by our BaaS channel, where revenue was up approximately 30%. The growth of one of our larger BaaS customers continues to power the top line while we faced headwinds on revenue and actives from the roll-off of two BaaS partners. We also began to see some of the positive impact of new partner launches. In the Rapid! PayCard channel, our revenue and active account growth has moderated due to macro shifts in the temporary staffing industry, one of our primary verticals, where we believe that wage inflation and recession fears have impacted hiring decisions. We experienced active declines in this vertical in late 2022 through May of this year, but we have seen a steady sequential rebound. Our revenue was also impacted by a shift in the mix of purchase volume that is weighing on interchange rates and changes in consumer ATM behavior. That said, strong sales activity and leading indicators in the core PayCard product, as well as continued growth in our EWA offering, give us confidence that momentum in this channel should reaccelerate in the coming quarters, with the third quarter showing improvement versus the first and second quarters. Profit in the B2B segment was down 16% and margins compressed as expected, driven largely by the impact of client deconversions in the BaaS business and the dynamics I just discussed in the Rapid! PayCard channel. While we face what we believe are temporary pressures on revenue growth, we continue to invest in the PayCard business as sales momentum has been strong while also incurring expenses to support the launch of BaaS partners. Shifting to our money movement segment, revenue was down 15% year-over-year from a decline in cash transfer volume and the timing of tax refund volume. The Green Dot Network business continues to see the rate of decline moderate from the mid-teens in 2022 to a low double-digit decline in the third quarter of 2023. Revenue declines were primarily driven by the impact of the decline in active accounts in our other segments, partially offset by the continued growth of third-party transactions. Volume from third-party programs represents over 60% of our total capture volume and continue to grow in proportion to total volume. With numerous new partners slated to launch in the coming quarters, I am optimistic about returning to overall growth in this segment. Our tax refund volume was down year-over-year because of timing shifts compared to last year. And on a year-to-date basis, revenue in our tax processing channel generated flat results with last year. Profitability remains solid with some modest margin expansion in both tax and Green Dot Network businesses. Our final segment, Corporate and Other reflects the interest income we earn on our bank, net of the revenue share on interest we pay to BaaS partners, as well as salaries and administrative costs and some smaller intercompany adjustments. Interest income, net of partner sharing, was down year-over-year as expected due to a higher rate environment. As a reminder, the rapidly rising environment of 2022 and 2023 creates imbalances between the blended yield we earn on our cash and investments and the rate we pay our BaaS partners, effectively creating a headwind for revenue in this segment. Sales and other general and administrative expenses were down slightly from last year as we began to see the impact of our cost-cutting efforts and the early benefits of reducing the costs associated with our technology conversions, partially offset by our investments in regulatory and compliance infrastructure. Now turning to guidance, we are raising our revenue range to $1.46 billion to $1.48 billion, and we’re reducing our adjusted EBITDA range to $170 million to $175 million. Likewise, we are reducing our non-GAAP EPS range to $1.62 to $1.69. We are lowering our bottom line guidance based on our Q3 performance, and our belief that the headwinds associated with the conversion and customer disputes will continue to persist into the fourth quarter. As mentioned, we believe these matters will be resolved before we exit 2023. We also expect to have incremental expenses in Q4 associated with our continued investment in regulatory and compliance infrastructure. Let me provide you with some general commentary on how I expect the fourth quarter to play out. In the Consumer segment, we expect revenue to be down a little bit more than 20%, while margins should be up over 500 to 550 basis points from last year. In the B2B segment, we look for revenue growth to be in the low 30% range, with margins expected to be up approximately 75 to 100 basis points. In the Money Movement segment, we expect revenue to be down in low single digits, with margins down approximately 300 to 350 basis points. In the Corporate and Other segment, we still face an earnings headwind from higher interest revenue share, which influences the corporate revenue line and that is expected to continue into the fourth quarter, though we expect to realize additional reductions in expenses as we wrap up the post-conversion work. We anticipate that those benefits will be offset to some degree by our ongoing investment in our regulatory and compliance programs. For the quarter, I expect our non-GAAP effective tax rate to be 23%, and the diluted weighted average share count to be approximately 52 million shares. With that, I'll turn it back to George.

George Gresham, CEO

Thank you, Jess. While our financial results in the third quarter were below our expectations, completing the processor conversions was a critical accomplishment and is fundamental to our long-term growth strategy and success. As I stop and reflect on where we are today, I am encouraged by the progress we are making. Our business development efforts are building momentum as we signed several new enterprise partners in our BaaS and Consumer segments, more than 270 new customers in the Rapid! PayCard and EWA business, and we added five new partners to the Green Dot network. As I mentioned previously, I remain very encouraged by the feedback and discussions we are having with current partners and prospects, and our pipelines remain strong. We remain very focused on driving efficiency and smart investments throughout the organization and are now beginning to realize the cost savings from our platform conversions. Completion of this project positions us to be a nimble, streamlined company and deliver innovative, efficient, and customizable solutions for our partners and their customers. Just as important, this enables us to reallocate resources to focus on other areas and opportunities for the Company and invest in areas such as product development and risk and regulatory infrastructure. As I said in my opening remarks, I want to position Green Dot as the trusted partner for all of our stakeholders and view this as a competitive differentiator as the market evolves. But we were not yet able to provide guidance for 2024. I would like to share some thoughts with you. One year ago, we faced the reality that several partners would be moving on, and we had a significant and critical processor conversion underway. Today, I can confidently report that we have made significant progress in navigating those circumstances and positioning Green Dot for growth. The one metric that I keep coming back to when I think about our ability to generate sustainable growth and shareholder value is account growth. I believe that we are in a much different position than we were one year ago. In the Consumer segment, we are seeing moderation in the rate of decline, the repositioning of the direct channel is in its final innings, and we will be launching PLS in the first of next year. In our B2B division, we will be lapping the deconversion of two BaaS partners while simultaneously benefiting from launching Ceridian, Credibly, and Stockpile, on top of growth from our existing customer base and with continued solid pipelines. Now, while Rapid! PayCard saw pressure on accounts in the first half of the year, we are now seeing steady sequential improvements. Not only are there many moving parts when you think through the process of building budgets and forecasts, but unlike last year, when we saw a clear headwind for account growth coupled with a big technology lift, that looks markedly different as I stand here. There is still plenty of work to do, but I am pleased with where we are on our transformation, and I am very grateful for the hard work and dedication of the Green Dot team as we work to deliver on our goals for 2023 and beyond while being good stewards of the trust and capital that our customers and investors have given us. Thank you for your interest in Green Dot. And now let's open the line for questions.

Operator, Operator

Our first question comes from Ramsey El-Assal with Barclays.

Ramsey El-Assal, Analyst

I wanted to ask for a little bit more color on some of the challenges you encountered around the processor conversion and also on the customer disputes that you called out as well. What were those two things? And do you feel pretty confident that they're kind of behind you by the end of the year, as I think you mentioned?

Jess Unruh, CFO

Thanks for the question, Jess. Without going into too many details, we faced some general configuration issues that impacted certain revenue streams associated with accounts. Additionally, we experienced elevated customer disputes. Overall, while it's difficult to quantify precisely, I would estimate the impact was around $8 million in Q3. We have mitigated some of these challenges throughout Q3, but certain issues, particularly regarding migration or conversion, persist, though not as extensively as they did in Q3. We are also still experiencing a high volume of disputes in October.

Ramsey El-Assal, Analyst

Okay. And you mentioned GO2bank and making progress there in terms of that being now the large majority of that part of your business and also taking steps to kind of reposition the business, I think you said working with retail partners on embedded accounts and building relationships with the digital experience or something like that. I'm looking at my notes here. But can you give us any hint in terms of what the future there might look like? What types of categories of improvements or refinements that you're making that could see the product catch a tailwind from some enhanced offerings as we move forward here?

George Gresham, CEO

Thank you for your question. This is George. To clarify for our broader audience in the direct-to-consumer channel, at the start of this year, we were managing several brands, many of which were acquired through mergers and acquisitions in the past. These brands had different processing platforms, user interfaces, and technologies, which made it challenging to manage several small brands individually. Therefore, we decided to shift our focus away from these legacy brands and invest in GO2bank, as you know. GO2bank is and will continue to be our primary consumer product offered directly to consumers. We also selectively offer GO2bank in retail locations where it makes sense for that brand. As we make incremental investments in our GO2bank product, our focus will be on ease of use, consumer understanding, education, access to future credit options, and payment types, allowing us to concentrate our investments on a single platform. GO2bank will remain our flagship product, both now and in the future. As the year progresses, we will cease investing in the other brands Jess referred to in his comments.

Operator, Operator

Our next question comes from Chris Kennedy with William Blair.

Chris Kennedy, Analyst

There's a lot of discussion about investment in regulatory infrastructure. Can you just talk about the regulatory environment and how you see that market, particularly within the BaaS business?

George Gresham, CEO

Sure. Thanks, Chris, for that question. It's correct. Our efforts to ensure continued adherence to high standards with respect to regulatory compliance continue, and they will continue. They're a very important value system at the Company. Our primary value being stewardship. We are stewards of deposits, and it is critical that we treat those deposits and those transactions associated with them with the highest level of care. So, we're going to continue to improve how we perform along those lines. But to take the broadest view of your question, I'm sure most of the participants on the call today are familiar with some of the more newsworthy events associated with regulatory developments pertinent to your question around BaaS specifically. You may be familiar with the executive branch regulatory agencies' launch of a novel bank program several months ago. I assume that program has a number of objectives associated with it. But certainly, I think one of those objectives is to enable the regulatory agencies to broaden and deepen their knowledge with respect to BaaS models, sponsor bank models, etc. Just this week, you saw the CFPB issue a notice of a proposed rule intended to extend their oversight of ostensibly non-bank enterprises that are conducting financial transactions. That's a very important development. So you can see that there's a lot of regulatory attention and activity associated with, if I guess, if you put a cynical frame around it, regulatory arbitrage—or basically payment transactions that move outside of a banking system, and therefore, might be treated by the manager of that transaction in a different way than a bank would treat that regulatory oversight. Now in general, that set of developments in our view is very positive. And I'll come back to why we think that in a minute. But before I leave this kind of overview and recent news, I'd also point out, you may have read an article in Time this weekend discussing numerous circumstances where consumers are getting their accounts closed without information, which leaves them largely impacted due to BSA and anti-money laundering action controls put in place by banking institutions, having real implications for consumers. So, we have this kind of environment that's developing. I would suggest to you that I think it's a good development from our perspective. We do have a lot of scale that we can capitalize on to invest in adequate and appropriate advanced compliance tools and systems. And here's what we want out of the regulatory environment: we, Green Dot, absolutely want a rigorous regulatory environment. Our core value of stewardship is absolutely imperative for our economy to trust DDA accounts, that trust is fundamental. So having rigor in the regulatory environment is something we view as very positive. But we want, like all participants in a market like this, a level playing field. All payment transactions need to be treated comparably, regardless of how they're shepherded through a payment lifecycle and by who. We want transparency in regulation. We want the regulations to be clear, clearly understood, and we want them applied consistently across regulatory agencies. I think those are pretty modest desires with respect to what we want out of the regulatory environment. We do view the recent developments to be positive. Green Dot was formed more than 20 years ago with the promise of bringing banking to Americans who did not have access to the traditional banking system, and that promise remains. We continue to do that. We provide millions of accounts to consumers who have an average deposit of $200 or $300. These consumers remain in need. They exist in the economy, and the large banks do not want to serve them. We are here to serve them. Of course, it's incumbent on policymakers to determine how they want to regulate entities that provide these services to lower-income markets. We would encourage policymakers, whether from the executive or legislative branch, to continue their efforts to provide clarity on this. So I've rambled on a bit. It's a hot topic, but I appreciate the question, and I'll pause to let you ask a follow-up.

Chris Kennedy, Analyst

Thank you, very comprehensive. On a separate topic, I understand you're not going to give 2024 guidance. But when you think about everything that you've done focused internally over the last several years and as you now focus externally, can you just talk about the growth of the business over the next three to five years and what you're thinking that can do?

George Gresham, CEO

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. In addition to the standard Rapid! PayCard distribution, we 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 good about that. In our direct-to-consumer business, we just mentioned GO2bank. We have not yet completely transitioned through the attrition of legacy brands, so that's inevitable in the very near term. GO2bank, both last quarter and this quarter, we expect next quarter, is growing very nicely. The BaaS business presents many opportunities to be very successful within that immense market. We have highly differentiated capabilities to serve that market, and we think that's going to serve us well from a growth perspective. To Jess's comments, we've migrated off of the platform and we'll grow through the declines we've experienced in that business. Our tax processing business has remaining important opportunities to the margins and to sell incremental services to tens of thousands of small businesses and micro businesses, one- to three-person employee businesses, in just a very rich set of potential product offerings within that business. Then we have the retail business, which is declining. I'm not going to sit here and say I have unbound optimism that this product, procured off the rack in a retail location, is going to be a growth engine for us, but we do think at a level at some point in the relatively near future. Importantly, the retail business has embedded relationships with the nation's largest retailers. They want to deepen their relationships with their consumers, particularly those using their loyalty and rewards programs. So the future of the retail business is to embed financial solutions into those reward programs. That is a little further down the road and a little bit more complicated from an execution perspective. But even that business, given our existing relationships, has a lot of opportunities for us. I know I didn't directly give you numbers that you might have hoped for, but that's kind of how I think of each of our channels.

Operator, Operator

The next question comes from Michael Perito with KBW.

Michael Perito, Analyst

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 and 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 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, is pricing in the BaaS market gotten better or a little—at least a little bit less competitive? I'm just kind of curious in terms of how you guys are thinking about allocating capital to the most profitable opportunities.

George Gresham, CEO

Thanks, Michael. First, on your comps, just to clarify, there are two important aspects that I would highlight regarding your comparisons—one is, obviously, over the last two years, we went from pre-COVID to COVID to substantial federal stimulus that impacted the business comps and then the withdrawing of that comp. So that's something to always keep in mind. Additionally, we have a singular BaaS partner on the revenue side that makes up a significant percentage of our revenue. I don't have the page number in the 10-Q, but we disclose it there, and you can look at that later. That contract has a relatively fixed dollar margin. So that's a complicating factor when you think about the dynamics here. 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. To the extent we can develop opportunities to increase that capital into that business, we will, but on a cautious basis. The nuances of that capital implication are that when you invest in our direct-to-consumer business, that capital investment directly hits your P&L at the moment it's incurred. This creates constraints with respect to the capital allocation, and if 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, so we're very cautious about those variables. We will continue to invest in that on a steady basis, but I would not expect a dramatic change in that investment. Our BaaS business, when we win a BaaS opportunity, clients have a large embedded customer set that becomes our target for marketing, sometimes with our help, and so when we acquire the right type of BaaS partners, we’re looking at potential account portfolios of 100,000, 200,000, or even 300,000 accounts. The marketing element associated with that partnership results in commissions, and we only incur the marketing cost when we sell a product. There are various advantages to that market. Lastly, I'd leave you with the concept that we have a set of platforms to deliver our services, our banking platform, the Green Dot works platform, our product platform, and our technology platform. Each of these platforms are intended over time to serve all of our distribution channels, irrespective of capital allocation. We allocate capital into those platforms, such that the marginal capital to go to market in one of the distribution channels is relatively small. I expect that we will continue to increase, both our investment in our platforms and our distribution and capabilities and competencies in the BaaS channel in particular. But I don't mean that to imply that we're going to neglect the rest of our channels.

Michael Perito, Analyst

That's helpful perspective. Second question for me, not to go back here because I know you guys said you're not providing '24 guidance 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, CEO

I've been talking so much; I'll let Jess take a swing at that one.

Jess Unruh, CFO

Sure, sounds good. Several quarters ago, we talked about savings associated with the conversion. I would say those are largely on track, and we are starting to realize the savings now that the processor conversion is complete. I expect that the year-over-year benefit in 2024 would be something less than the savings achieved this year, but nonetheless, that will help margins, particularly in the consumer segment and the B2B services segment, though it will impact both favorably. 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 eliminate that third-party processor which would provide material savings for us. Several initiatives are underway that would enhance margins over the long term. In the B2B services segment, as George mentioned, we have a particular contract that has a fixed structure. So, as long as that remains, it will weigh on overall margins. But if you exclude that particular partner, the rest of the BaaS partnerships have strong margins. Our Money Movement business, particularly in the TPG business, has really strong margins. Even in our Money Processing, we call it the Green Dot Network, has really strong margins as those grow. Lastly, I would say in the PayCard business, EWA also has margins in excess of what a traditional PayCard business would have. George, anything you want to add?

George Gresham, CEO

I'd just add when we talk about savings from the conversion, we've quantified that in prior calls. The savings has two elements: OpEx savings because we have now a much lower cost structure per unit of processing. We invested considerable capital in 2023 and '22 in preparation for and building out the new platform. We expect to have an opportunity to reduce our capital consumption and improve our margins, and thereby, improve free cash flow as a result of those efforts. We're extremely focused on building a scalable enterprise that achieves marginal growth from the incremental dollar of revenue on our EBITDA and other earnings metrics. I'll pause there, and hopefully, we can continue to assist you with your questions.

Michael Perito, Analyst

Yes, for sure. And then just lastly for me, I understand it might not be the biggest strategic priority here, but with the technology projects under your belt and a very disrupted and generally broader fintech payments banking market and valuations down across pretty much all sectors, is there any thought or updated thoughts you're ready to provide around M&A or any opportunities to put capital to work in that arena? Just if the answer is no, that's fine. I want to—I don't believe we've talked about it in a while, so I just wanted to see if there's any update.

George Gresham, CEO

Yes. First, I'd say with respect to the interest rate environment, it has both benefits and challenges for us. Jess commented on some of those challenges in his remarks. So I won't repeat them. But from a competitive landscape perspective, obviously, in 2020, '21, etc., in an extraordinarily low interest rate environment, emerging companies, VC-level companies could acquire very inexpensive capital and, in some cases, be unruly with that capital concerning account acquisition. That kind of behavior has been tempered in our current interest rate environment. We view that as a very positive development for us since we're not generally in the capital-seeking business right now. Over the course of 2023, whatever your prognosis is for interest rates, one of the biggest variables in our planning and budgeting process for 2024 is what to expect for interest rates next year that we're working through. By the time we provide guidance, we will need to assess that. Should those rates decline in 2024, it could have a relatively significant positive impact on us. As it relates directly to your question around M&A, I think that we're really focused on building out our capabilities, the platforms, our distribution capabilities, and focusing our capital on those areas as opposed to layering on more complexity with integrations, etc. So I would say, generally, to the extent we would be interested in M&A, we would be extremely cautious about it.

Operator, Operator

And the next question comes from John Hecht with Jefferies.

John Hecht, Analyst

First question is just very technical. What's the duration of the securities book at this point in time?

George Gresham, CEO

I believe it's around six years.

John Hecht, Analyst

Okay. And then second question is in the consumer segment, the GDV and ARPU, like relative to recent quarters, you're seeing different growth trajectories and different dollar amounts. I know that you guys discontinued some products, and obviously, within the GO2bank, there's a sort of different approach to acquiring a banking customer. So the question is, can you characterize how the customer is using Green Dot services and the mix of revenue now versus like a year or so ago?

George Gresham, CEO

That's a good question. As you know, several years ago, we launched overdraft protection for our consumers. We offered that to principally only our direct deposit base. This has helped drive direct deposit attachment rates, is overall more efficient with our customer acquisition costs, and ultimately achieves higher lifetime value because direct depositors are more highly engaged, driving higher GDV and higher revenue per active account, etc. We've rolled that across almost all of our brands. I think a lot of the product enhancements and improvements we've made also help drive engagement. We've offered credit monitoring products and have a full suite of things that we're focused on in 2024 to continue to drive retention and engagement of our consumer base. In terms of BaaS, I would say just the type of partners we’re engaging with, we've been encouraged by the growth of those partners we've added in the last couple of years. Some of them are SMB, others are in other verticals, but we’re seeing good attach rates and strong revenue per active account in those particular verticals. We’ll continue to iterate on our product offerings and continue to drive acquisition efficiency and engagement. I'm not sure if that answered your question, John, but let me stop there.

Operator, Operator

Next question comes from George Sutton with Craig Hallum.

James Rush, Analyst

This is James Rush on for George. What inning would you say we are in, in terms of running off the legacy portfolios in the consumer business and sort of how we should think about when that process might be over? And maybe when we could see the consumer segment return to growth?

Jess Unruh, CFO

Yes, while I am not providing any guidance for 2024, I believe we are mostly in the seventh inning regarding the legacy products and their decline. There is a chance that in the second half of next year, we might begin to see overall growth in the consumer business.

James Rush, Analyst

Great. And then congrats on the new service partner this quarter and last quarter. How do you describe the banking service pipeline today compared to maybe the start of the year? And then is the completion of the platform conversion helping you close deals or become more competitive?

George Gresham, CEO

Thanks, James. Let me start with this. So a year ago, yesterday marked Chris Ruppel’s one-year anniversary in his new role as Chief Revenue Officer. Prior to that, the position did not exist within the Company for a couple of years. Chris's first job was to embed and form all of our divisions into standard operations with respect to pipeline management, utilizing consistent tools, methodology, and measurement. We've gotten that in place. Our pipeline from the beginning of this year has grown considerably. It's qualified, measurable, and stated on a probability-based standard. I would say our pipeline in the BaaS business, and in fact, in several of our businesses, is strong and growing. I think we need to improve our ability to onboard expeditiously both small and large clients. We're now very focused on that improvement. In 2024, we've got a great pipeline. We have a lot of evidence that we can close deals. We need to do a better job at bringing those deals into the P&L in a much quicker way.

Operator, Operator

With no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to George Gresham for any closing remarks.

George Gresham, CEO

Thank you, operator. I'd like to focus my closing remarks today on our colleagues and associates at the Company. It's been a lot of work to go through this processor conversion, it takes a lot of late nights, a lot of weekends, a lot of effort, and we have a really dedicated team of professionals at the Company. I want to make sure they understand that they are appreciated and the work they have done has been extremely valuable for us. Let me close by thanking our colleagues, team members, and employees of the Company. And thank you to the rest of you for keeping your interest in our story. As we move along this path, I appreciate it. Thank you all. Bye-bye.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.