NetSpend Holdings Inc. said it is seeking additional partners in light of the regulatory problems facing its biggest prepaid card issuer, MetaBank.
NetSpend cannot enter new relationships with certain retail distributors of its prepaid cards unless MetaBank obtains approval from the Office of Thrift Supervision, which has expressed concerns about Meta's operations, according to a filing NetSpend made Monday with the Securities and Exchange Commission.
But that process could take several months, because the OTS has told MetaBank it will not consider new agreements until it finishes its review, NetSpend said. NetSpend predicts this situation could force it to miss out on $1 million a year in potential revenue.
NetSpend, which markets prepaid reloadable debit cards to primarily underbanked consumers, has signed new distributor agreements that it has submitted to MetaBank for approval. "If MetaBank is unable to secure OTS approval or we are unable to establish these distributor relationships through an alternative issuing bank, we estimate that we would miss the opportunity for approximately $1 million of annualized revenue from these potential relationships," the filing said.
NetSpend said in its Monday filing that it plans to transition at least 15% of its noncorporate employer issued prepaid card volume to one or more additional issuing banks within 90 days.
It said it has signed letters of intent to add Bancorp Bank, a subsidiary of the Wilmington, Del., bank holding company Bancorp Inc., and H&R Block Bank, a subsidiary of the Kansas City, Mo., tax preparation company H&R Block Inc., as card issuers.
"It's certainly sensible to kind of diversify that risk," said Ben Jackson, a senior analyst at Mercator Advisory Group in Maynard, Mass. "If for whatever reason the OTS decides that Meta is not doing what it wants or they begin to look at … the business as a whole, then the NetSpend programs could have real trouble. You wouldn't want to suddenly have all these cards out there that no longer have an issuer that has the blessing of its regulator."
Meta Financial Group Inc. of Storm Lake, Iowa, which owns MetaBank, disclosed in an SEC filing last week that the OTS had ordered it to shut down iAdvance, a short-term, high-interest loan program it offered to prepaid card holders through some of its partners, including NetSpend.
The OTS also directed MetaBank, which as of midyear had issued about 71% of NetSpend's prepaid cards, to obtain approval for entering new business partnerships or materially amending existing ones.
NetSpend, which also owns about 5% of Meta Financial Group, said it did not expect a major financial impact from the closure of the iAdvance program. However, it postponed pricing its initial public offering from last week to this week.
"This is an example of the complexity of the prepaid … value chain," Jackson said. "There are all these different players involved, and something that affects one of them ripples through the business of others."
Moving some of its card volume to other issuers would require NetSpend to change certain cardholder terms and conditions and "consume IT and management attention and resources," the company said.
NetSpend said only some of its retail distributors, including those that have the capability to issue cards and accept cash deposits, would require MetaBank to obtain the OTS's blessing.