Green Dot Corporation (GDOT), The Western Union Company (WU): How To Play

There’s a large swatch of the country that doesn’t use banks. These people are a huge market, and The New Yorker recently highlighted why you should be looking for opportunities in the space.

Undocumented Income

One of the big blocs that don’t use banks are illegal immigrants. This fact has given the space a bad name. However, it isn’t only illegal immigrants that avoid banks. Anyone who earns cash but doesn’t want to pay taxes can fall into the unbanked or underbanked category.

This is because as soon as money hits a bank, it raises questions as to where that cash came from. A little money isn’t a big deal, but a lot turns into a problem. With more and more people falling out of the workforce, The New Yorker suggests that they are falling into a gray area.

For example, the magazine suggests that: “Off-the-books activity also helps explain a mystery about the current economy: even though the percentage of Americans officially working has dropped dramatically, and even though household income is still well below what it was in 2007, personal consumption is higher than it was before the recession, and retail sales have been growing briskly (despite a dip in March).”

This is a big deal. Bernard Baumohl, an economist at the Economic Outlook Group, told The New Yorker that “retail sales are actually what you’d expect if the unemployment rate were around five or six percent, rather than the 7.6 percent we’re stuck with.”

How to Play

With people from construction workers to web designers falling into this gray space, serving those with limited or no bank relationship is an area that investors playing macro trends should be watching. Here are a few names to consider:

A Leader

Green Dot Corporation (NYSE:GDOT) proudly proclaims “Big Banks, No Thanks” on its retail website. Although the company is technically a bank holding company, its main offering is prepaid and reloadable debit cards. The cards carry the Visa and MasterCard brands. It claims to have around 60,000 retail locations nationwide dispensing its cards.

Although a relatively young company, its top line has been growing steadily. It has no debt and reports to have over $10 per share of cash on its balance sheet. With the shares trading in the mid teens, that doesn’t assign an industry innovator much value. This could be an interesting option for more aggressive investors.

An Old Name

While Green Dot Corporation (NYSE:GDOT) is new, The Western Union Company (NYSE:WU) has been around “forever.”