NetSpend Signs Card-Issuing Deal With Bancorp Bank

This story was updated from its original version.

Prepaid card provider NetSpend Holdings Inc. is making progress on efforts to move business away from beleaguered sponsor bank MetaBank with a new deal with Bancorp Inc.

NetSpend and Bancorp on Jan. 31 announced the signing of a multiyear agreement under which Bancorp Bank Payment Solutions Group will issue cards for new and existing prepaid programs that NetSpend operates.

NetSpend, of Austin, Texas, 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 (see story).  Monday’s announcement sent NetSpend’s shares up more than 3% to $14.44 in morning trading.

The Office of Thrift Supervision forced MetaBank, a subsidiary of the Storm Lake, Iowa-based holding company Meta Financial Group Inc., to shut down a high-interest, short-term credit program offered to prepaid cardholders. The agency accused the bank of engaging in “unfair or deceptive acts or practices” and limited its ability to enter new business arrangements or alter existing ones without the agency’s approval (see story).

NetSpend’s goal has been to shift some of its issuing volume away from MetaBank, which accounted for 72% of NetSpend’s active prepaid cards as of Sept. 30, according to a filing from NetSpend with the Securities and Exchange Commission (see story).

NetSpend expects to begin issuing general-purpose reloadable prepaid cards, which act like debit cards, with 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.”

Based on the timing of its program with Bancorp and discussions with other possible 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.

John Williams, an analyst with Goldman Sachs Group Inc., wrote in a Jan. 31 research note 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,” Williams wrote.

NetSpend did not return calls seeking comment before deadline.

NetSpend 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.

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