The prepaid card provider NetSpend Holdings Inc. made progress on moving business away from its beleaguered sponsor MetaBank through a deal with Bancorp Inc.
NetSpend and Bancorp said Monday that they had signed a multiyear agreement under which Bancorp Bank's payment solutions group is to issue cards for new and existing prepaid programs that NetSpend operates.
NetSpend, an Austin, Texas, company, announced in October that it had signed a letter of intent to add Bancorp as an issuing partner after its primary card issuer, MetaBank, came under regulatory scrutiny. Monday's announcement sent NetSpend's share price up as much as 5%, to $14.71.
MetaBank, a subsidiary of the Storm Lake, Iowa, holding company Meta Financial Group Inc., was forced by the Office of Thrift Supervision to shut down a high-interest, short-term credit program offered to prepaid cardholders. The OTS said the program engaged in "unfair or deceptive acts or practices," and the agency limited the bank's ability to enter new business arrangements or to alter existing ones without OTS approval.
NetSpend's goal has been to shift some of its volume away from MetaBank, which accounted for 72% of NetSpend's active prepaid cards at Sept. 30, according to a NetSpend filing with the Securities and Exchange Commission.
NetSpend plans to begin issuing general-purpose, reloadable, prepaid cards, which act like debit cards, through Bancorp in April.
In a press release, NetSpend said it "continues its discussions with other current and prospective issuing banks and remains committed to its previously articulated strategy of diversification among at least three issuing banks."
John Williams, an analyst at Goldman Sachs Group Inc., wrote in a research note on Monday that concerns over NetSpend's risk are "overdone." "It would be relatively simple to 'unplug' a portfolio from one bank and 'replug' it in somewhere else, though such a process could be administratively difficult," he wrote.
Based on the timing of its program with Bancorp and discussions with other potential issuing banks, NetSpend said it expects to move more than 15% of its "noncorporate, employer-issued debit card volumes" from existing or new cardholder accounts to one or more other banks by the second half of 2011.
NetSpend said in an e-mail it is keeping its relationship with Meta.
It said in October that it also signed a letter of intent to add H&R Block Bank, a subsidiary of H&R Block Inc., as an issuer.