One of the nation's biggest prepaid card issuers said that it expects to lose 10% to 12% of its current revenue as a result of new federal rules governing the industry.
NetSpend, which is a division of Total System Services, expects to collect $80 million to $85 million this year in overdraft fee revenue and other fees that would be wiped out by pending regulations from the Consumer Financial Protection Bureau. The firm provided the estimate during a quarterly earnings call Tuesday.
The new CFPB rules are scheduled to take effect on Oct. 1, 2017, which gives NetSpend almost another year to prepare, on top of the nearly two years that have passed since the agency first proposed the changes.
NetSpend said that it is planning to launch several new products, including a prepaid card for small businesses and a deposit account that allows customers to write checks, in an effort to overcome the lost revenue.
Customers who sign up for NetSpend's new deposit account will be given the option of enrolling in an overdraft program, the same choice that bank customers generally face when they sign up for a checking account. Such an account would give NetSpend a way to work around the forthcoming prepaid card restrictions.
The CFPB regulations do not technically ban overdraft fees on prepaid cards, but they require issuers of the cards to assess each borrower's ability to repay any those fees. That provision is widely seen as the death knell for overdraft fees in the prepaid card industry.
As a result of the rules, NetSpend expects to lose $20 million to $25 million in total revenue during the last three months of 2017. The company projects the full-year revenue impact in 2018 at $40 million to $50 million, as the new products gain traction.
"In other words, we expect to offset close to half of the negative revenue impact of the rules through our business expansion strategies," Paul Todd, chief financial officer at Total System Services, said during Tuesday's conference call.
The share price of Columbus, Ga.-based Total System Services climbed by 5.6% after the company released its projections on the impact of the new rules.
"Wall Street needs clarity. And this gives you clarity," said Lawrence Berlin, an analyst at First Analysis.
While $80 million is a substantial chunk, it amounts to only about 2% of the revenue that the entire company is expected to report this year.
NetSpend, which was acquired by Total System Services in 2013, is expected to take a bigger hit from the new rules than its main competitors. Pasadena, Calif.-based Green Dot, which is the nation's largest prepaid issuer, does not charge overdraft fees on its cards.