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Prepaid marketer NetSpend Holdings Inc., which recently lost some crucial distribution partners, has rebounded with 7-Eleven Inc.
October 14 -
The prepaid card marketer NetSpend is teaming up with PayPal in a deal that has so far been the subject of little fanfare by either company.
November 1
NetSpend Inc. has landed a deal to issue payroll cards to corporate customers of a large Northeastern bank as the prepaid card company recovers from setbacks this year.
The prepaid card company, which has struggled to grow since it went public in October 2010, posted largely solid third-quarter results on Thursday.
Though the number of total active cards slipped, NetSpend emphasized potential gains from a host of new partnerships announced in recent weeks, including deals with
Dan Henry, NetSpend's chief executive, said on a conference call with investors that it had "just signed" with a "large financial institution in New England" to issue paycards to some of the bank's corporate customers. He did not identify this institution.
Like prepaid cards, paycards work like debit cards without being tied to a checking account. Paycards are distributed by companies to employees in lieu of a check. The cards are popular among companies that hire employees without checking accounts who would otherwise have to redeem their wages at check cashers, which can be costly.
The deal could in the future expand to include issuing reloadable prepaid cards from the New England bank's 1,500 branches, Henry added on the call - a move analysts hope to hear more about.
The deal "could be very interesting as we learn more" about how large the partnership is and how it is structured, says Larry Berlin, an analyst with First Analysis Corp. "There's a lot of potential there."
More new deals may be afoot.
"We just had two meetings this week with large potential partners that could be very rewarding," Henry said in an interview after the conference call.
The company has been hustling to regain its position after announcing last quarter that it had lost three check-cashing partners that sold its cards. Rumors swirled that the beleaguered Austin, Tex., company, was a
"The signing of partnerships should be a positive for them," says Berlin with First Analysis Corp.
"Management seems to be moving and growing in a changing space," he adds.
NetSpend said on the call that it continues to expand its paycard business, with more 1,100 employers using the service.
The company's CEO added in the interview with American Banker that he generally views banks as "potential partners."
Henry noted in the interview that banks turn away as many as one in five customers who come in to open a checking account, because low-income consumers are an increasingly unprofitable group for traditional banks.
"We're talking to more and more banks trying to find solution to that," Henry said in the interview. "We're going to see major banks moving into this space. Whether they partner with us or not, it's still going to be a positive to NetSpend and everyone in this industry."
New regulations that cap overdraft fees and the amount of money the banks bring in on debit interchange fees could help propel banks into the prepaid space, predict some observers.
"Consumers are now less profitable for banks than they used to be," says Wedbush Securities analyst Gil Luria.
One alternative is to sell "borderline customers" alternative products at a lower cost, such as prepaid cards, says Luria.
That move by traditional banks is in the "
It remains to be seen whether the trend will catch on.
"If prepaid made sense before, [banks] would have done it," says John Kraft, a senior vice president with D.A. Davidson & Co.
The way new bank rules are written "it's pretty clear that [regulators] don't want the banks changing debit accounts to prepaid accounts to avoid [interchange fee] caps," he says. "You really haven't seen big launches in prepaid from the banks, and it makes sense because banks have always been able to have prepaid."
Overall, though, Kraft too is optimistic about NetSpend's potential.
NetSpend still has several "company-specific headwinds" thanks to the loss of the check cashers and the company's decision to quit the gift card business, he says.
But the company is "still growing pretty nicely. As soon as those headwinds dissipate, you'll have the tailwinds of new partners," says Kraft.
On Thursday the company reported third-quarter profits of $8.3 million, up 30% from a year prior. Revenue rose 9% to $74.3 million.
The total number of active cards dipped 3% to 2.1 million, though the number of active cards with direct deposits rose 21% to 816,000. Direct deposit cardholders are considered more lucrative because people tend to keep the card longer and deposits bring in regularly scheduled cash loading fees for the company.
