IMGCAP(1)]
NFinanSe Inc. believes the company's August announcement that it raised about $13 million in shareholders' equity will help the prepaid card provider maintain a "good balance sheet" as it attempts to grow along with the industry.
"It's a significant event for us to be putting this kind of equity in the company," Jerry Welch, CEO of nFinanSe, tells ATM&Debit News.
New and existing shareholders bought the additional shares, according to Welch.
The Tampa, Fla.-based company, which has struggled financially for nearly a decade, made two other announcements during the past two weeks that could help grow its share of the prepaid card market. Industry analysts, however, remain unclear on nFinanSe's strategy because in the past it has been challenged to successfully execute varying strategies.
Within two months, nFinanSe plans to begin offering Visa-branded, reloadable prepaid cards issued by Palm Desert National Bank. NFinanSe previously offered only Discover-branded reloadable prepaid cards, also issued by Palm Desert.
That announcement came a week after nFinanSe announced a distribution deal with Coinstar Inc. Under the deal, the Bellevue, Wash.-based company, known for its coin-counting kiosks, is to make nFinanSe's products available through its network of 30,000 retail sites starting in the fourth quarter. Coinstar also offers prepaid cards at its machines.
NFinanSe has a similar deal with InComm Inc., an Atlanta-based marketer and distributor of reloadable prepaid debit cards.
Welch says nFinanSe's strategy is to get as much distribution through retail stores as possible. "We want to get our cards, which have differentiating offerings, at any and all retailers," he says.
The strategy ties with Welch's retail experience, which includes a 10-year stint as CEO of New York-based specialty toy retailer FAO Schwarz Inc. from 1995 to 2005.
"Our company knows retail very well," Welch says. Retailers "learned a long time ago that consumers want choices. What they want is multiple offerings because nobody is going to appeal to all the customers."
NFinanSe is offering two different brands because of how each appeals to consumers, Welch says. Visa Inc. is the more popular brand, but Discover Financial Services has a "fiercely loyal following," he notes.
Mercator Advisory Group says it is challenged to understand the strategy behind the Visa announcement.
"Running prepaid programs on two networks platforms increases the cost and need for additional oversight significantly for a provider," Mercator writes in an e-mailed statement to ATM&Debit News.
Executives at the company believe NfinanSe's products will appeal to over 100 million consumers who might be in the market for a prepaid card. "I don't think [the payments industry] really comprehends how large the market potential is for reloadable prepaid cards," Clare J. Morgan, nFinanSe vice president of marketing, writes in an email to ATM&Debit News.
Besides unbanked and underbanked consumers, there are consumers who, "due to the current economic climate, find themselves without access to plastic, having to cut expenses, looking for ways to keep their household on a budget yet still needing to make purchases or payments online," she says.
College students also will become a prime target of prepaid card providers under the Credit Card Accountability, Responsibility and Disclosure Act, Welch says. Under the law, most of which takes effect in February, anyone applying for a credit card under the age of 21 either must have a legal adult co-sign the application or prove they can handle the debt themselves.
"Prepaid cards are going to have a big rise in use in respect to college students," Welch says.
NFinanSe also offers gift and payroll cards, which will remain important to the company's overall strategy, Welch says. "But I think it's fair to say the segment that will grow the most in the next five years are general purpose reloadable cards," he says.
The card provider is in a good position because it anticipates accelerated growth in the prepaid industry in the "next five to six years," Welch says.
The company, founded in July 2000, has undergone some changes during the past five years to position itself better in the marketplace. Previously known as Morgan Beaumont Inc., the company in 2005 began selling wholesale telecommunications services. It launched prepaid phone cards to develop brand recognition in the credit-challenged or cash-based consumer market, according to a recent U.S. Securities and Exchange Commission filing.
NFinanSe abandoned the phone card operation as it struggled with unacceptable operating losses, which were draining resources from the company's core business, the filing says. The company has incurred losses since its inception and anticipates it will continue to do so through the first two quarters of fiscal 2009, according to the filing. NfinanSe's fiscal year ends in December.
The company lists losses from continuing operations at $46.4 million between July 10, 2000, to Jan. 3, 2009.
Welch is not concerned about the losses, however. "We feel very good where we are," he says. "If you look at the history of what our small company has done, we feel like we have ourselves positioned very well." ATM
