For some underbanked consumers, it's "nothing but net". NetSpend offers prepaid debit cards to people who can't or don't want to deposit their money in a bank. The company offers pre-paid MasterCard or Visa-branded debit and payroll cards directly to consumers via the Internet or through major check cashers (such as ACE Cash Express), convenience stores, and supermarkets. Clients can reload their cards for a fee at more than 130,000 locations. NetSpend's cards include features such as direct deposit, bill pay, savings accounts, and transfers. The company targets the more than 60 million underbanked consumers in the US and has more than 2 million active cards. The company went public in late 2010.
The prepaid card market has been growing, as evidenced by the recent IPOs of NetSpend and rival Green Dot and the formation of such companies as UniRush and AccountNow. Electronic payments provide an attractive alternative to the cash transactions that the underbanked demographic has traditionally relied one. As prepaid cards increasingly gain acceptance, however, the competition has also ramped up and more types of companies (data processors, banks, retailers) have entered the market. To compete, NetSpend is focused on expanding its customer base and growing its distribution network.
The company's main strategy for increasing deposits is to target customers who directly deposit their wages or other funds, as those customers typically bring in more revenues as well as stick with the company for a longer period of time. It markets its cards through more than 1,000 employers, including Kohl's, Starwood Hotels, and Macy's, who in turn offer NetSpend's products to its underbanked employees.
In a big move to expand its distribution network, NetSpend announced in early 2012 a partnership with retailer 7-Eleven. The convenience store will sell and reload NetSpend cards at some 5,000 locations throughout the nation. The deal should attract more consumers, as the retailer offers its services around the clock. The company has also entered an agreement with PayPal, through which it will exclusively manage and process PayPal-branded prepaid card. It began marketing the card in early 2012. NetSpend is banking on the PayPal card to help it expand its presence with traditional retailers, a key strategic focus for the company.
As a result of the industry's growth, NetSpend has seen its revenues and profits grow for the past three years. The company attributes the growth to the focus on direct-deposit customers, as well as its expanded roster of products. Its operating costs have also grown, though, largely due to an increase in its provision for fraud-related losses. NetSpend is consolidating certain operations and technological platforms, which should help cut costs.
In 2010, NetSpend agreed to promote MetaBank as its preferred issuing bank, and MetaBank in turn promotes NetSpend as a preferred manager. As a part of the deal, NetSpend acquired a 5% stake in Meta Financial Group, MetaBank's parent. In 2011 MetaBank was given a cease-and-desist order by the OTC (now the OCC), which ruled that the company had engaged in unfair lending practices. Since then, NetSpend has entered into a card-issuing partnership with Bancorp Bank, but the majority of its active cards are still issued by MetaBank.
JLL Partners -- the parent of ACE Cash Express which sold Atlanta-based card provider Skylight Financial to NetSpend in 2008 -- owns 26% of the company; Oak Investment Partners owns another 27%. The investment firms also have board representation, with two directors each. – less