NetSpend's Outgoing CEO Seeks the Next 'Aha' Moment in Payments

Dan Henry, who became NetSpend's CEO in 2008 and leaves at the end of this month, plans to look beyond the prepaid world after his final day on the job.

"So much is going on in payments that I am not clued in on, whether it is mobile or Bitcoin," Henry said. "I'll probably make a few calls, attend a few conferences and see if I want to go back to work or not."

Henry wants to find the same type of "aha" moment that transformed NetSpend into a provider of prepaid services for millions of consumers stuck in a cash-based economy. (NetSpend became a part of the payment processor Total System Services last year; Henry is leaving July 31, the same day TSYS CEO Philip W. Tomlinson is retiring).

"When I first looked at NetSpend, they were chasing pretty much everything that was prepaid, but when I spoke to the founder of the company he explained that there was a large underbanked population in the U.S. that a prepaid product could serve," Henry said. Because he had spent the previous 13 years delivering electronic payments through Euronet Worldwide, a company he co-founded, Henry said he wasn't aware that between 30 million and 40 million Americans "were literally trapped in a cash-based economy because banks were not designed nor willing to serve the low-income consumer."

One of his first moves was to take the risk of exiting the gift card business to sharpen the company's focus on general-purpose prepaid cards, which were a better fit for the underbanked.

"To see the growth that NetSpend accomplished by serving a consumer that had been overlooked and neglected for decades was very satisfying," Henry added.

But the prepaid world wasn't a joy ride.

NetSpend in particular faced a few headwinds, including the loss of several check-cashing distributors in 2011 and litigation-related losses that cast a cloud over its earnings for much of 2012.

NetSpend repaired its distribution channel by partnering with mainstream retail chains, including those that used to exclusively offer cards from its rival Green Dot. NetSpend continues to rely on partnerships with well-known brands to get its products in front of more consumers.

The litigation expenses stemmed from a Texas jury's determination that NetSpend violated  patents of Raleigh, N.C.-based Alexsam Inc. related to the technology that activates a prepaid card reload. The parties settled the case in November of 2012, with NetSpend paying $24 million for a fully paid up license under the Alexsam patents.

NetSpend also had to do its best to resist a growing onslaught from regulators and consumer advocates who took issue with the business model of the prepaid card market as a whole, including the way cards disclose their fees.

"Those good intentions are getting to the point where they are becoming very damaging and stifling to the industry, and ultimately to the consumer," Henry said.

Throughout his time leading NetSpend, Henry has insisted that consumers are capable of guiding the market on their own.

Perhaps the clearest example of a consumer-led shakeup is the Kardashian Kard, which asked buyers to pay up to a year's worth of its monthly fees up front. Despite receiving huge media attention, the product sold only 16 cards and was discontinued within weeks of its launch (the Kardashian Kard was not a NetSpend product, though Henry was one of the Kard's few buyers).

"The Kardashian Kard didn't go away because of regulators or advocates; it went away because consumers didn't want the product," Henry said. "Consumers shut them down in a blink of an eye."

Below: Dan Henry discusses the forces that doomed the Kardashian Kard.

Many other celebrity-linked prepaid cards have also flopped in the market, despite their star appeal. These include the Approved card from personal finance guru Suze Orman and two separate prepaid cards endorsed by basketball star Magic Johnson. Meanwhile, companies like NetSpend and Green Dot remain in the prepaid game, and many banks have debuted products based on the models set by successful prepaid card marketers.

American Express in particular has nurtured a prepaid business based on its Serve platform, which includes the Bluebird card it offers through Walmart. Serve is also the default prepaid account offered to users of the telco-backed Isis mobile wallet.

"That's the free market at work," Henry said. "The price of prepaid products has dropped dramatically in the last five years, not because of regulators or advocates, but because of competition in the market."

The flood of new prepaid offerings is partly why Henry has decided to leave NetSpend at this time, but not because of any dents competitors could put into NetSpend.

"My decision in saying it was time to go was in part because I look at Walmart and the others offering prepaid cards and I can see that the task of serving this underserved consumer is being taken care of now," Henry said. "There are plenty of folks serving this consumer."

The other reason for leaving is a confidence that Chuck Harris, his successor, is well qualified for the job.

"In looking at the organization, Chuck Harris is a great leader and great salesman; he has the whole package," Henry said. "And when you look at the partners NetSpend has, the growth prospects are solid, as good as they have ever been."