Is the unbanked market for prepaid cards about to explode? Or is it on a slow simmer? It appears NetSpend will find out one way or another. One of the major providers of prepaid reloadable debit cards in the U.S. has signed a merger agreement with Skylight Financial, a leading corporate payroll and government benefits debit card provider to corporations and consumers, in a pairing that will form one of the largest private companies concentrating on the unbanked and underbanked consumer market.
Under new CEO Daniel Henry, Austin, TX-based NetSpend is looking to put cards in millions of hands for not only purchases, but for paying bills, shopping online, receiving paychecks and handling travel reservations. The firm has issued more than 14 million debit and gift cards through more than 30,000 purchase locations and 65,000 debit reload sites. Skylight, meanwhile, has built up 1,000 corporate client relationships, including through strategic partnerships with U.S. Bank and SunTrust Banks. The Atlanta firm will retain its operations in the Peach state.
“Consolidation in the prepaid card industry is continuing as the largest players seek to build scale and round up their product offering,” according to Aite Group analyst Gwenn Bezard in a statement, referring to First Data’s acquisition of closed-loop card provider Incomm. “Today, the Netspend-Skylight transaction is about creating a player that can serve the prepaid card needs of unbanked across all channels, from retail locations (Netspend) to employers (Skylight). Beyond prepaid card, the merged entity will be increasingly focused on serving the broader financial needs of the unbanked, as well.”
But not all think the prepaid market is all that. In a March Fed report, spending on prepaid cards was just under $50 billion in 2006, less than half that was reported by more bullish research firms like Aite (which estimated them at more than $95 billion). The differences lie in how the Fed differentiates some purchases that its researchers felt were double-counted in other reports, or its exclusion of phone and government benefit cards.
Another sign of prepaid caution may have been Capital One’s decision last fall to back out of a $700 million acquisition of NetSpend last summer (and instead take a minority stake)—although that also might have been more of a reflection of Capital One’s own problems with chargeoff activity. Mercator Advisory Group still predicts overall prepaid card activity will account for $236 billion next year.
No terms were disclosed in the deal, which is expected to close in the third quarter.
