Prepaid card marketers are entering each others’ turf to reel in more underbanked consumers.
Whereas companies such as Green Dot Corp., NetSpend Holdings Inc. and others largely have focused on separate sales channels to attract new customers, they are starting to go after similar groups with new partnerships.
NetSpend on May 5 announced a partnership with entertainment conglomerate BET Network to develop a cobranded prepaid card targeted at black consumers. Some analysts say the move is a play to take on media icon Russell Simmons’ well-known prepaid RushCard, also targeted at the demographic.
“With the BET agreement, I think that the brawl in prepaid has begun,” says Ben Jackson, a senior analyst in the prepaid advisory service at Mercator Advisory Group in Maynard, Mass “Before this, I think a lot of the … prepaid card providers were sort of operating in separate spaces. They were adjacent, but they weren’t necessarily going head to head for anything other than the nebulous unbanked market or underserved market. With NetSpend saying, ‘OK, now we’re going to partner with BET,’ now they’re going right in and going after the RushCard market.”
Other companies also are targeting specific ethnic groups.
Earlier this year, payments-services company PreCash Inc. announced the Reach Visa prepaid card targeted at blacks with syndicated radio host Tom Joyner as the product’s spokesperson. And Univision Communications Inc. last year launched a prepaid debit card targeted at Hispanics with MasterCard Worldwide.
Green Dot, NetSpend and other third-party program managers do not issue prepaid cards. Instead, they manage customer relationships and handle marketing for partner issuing banks.
Prepaid executives say there is more than enough room for multiple players, with an estimated 60 million unbanked and underbanked consumers in the U.S. But Green Dot and NetSpend, two of the best-known names in the market, have been under pressure by analysts and investors in recent months to boost their card growth after having completed successful initial public offerings last year.
NetSpend said Thursday that its number of active cards, or those that have been used to make a transaction in the previous 90 days, was 2.3 million as of March 31, up 9.5% from 2.1 million a year earlier.
NetSpend’s first-quarter revenue rose 16%, to $80.8 million, and its net income rose 68%, to $7.8 million (
Despite reporting increased revenue and net income, NetSpend’s shares fell as much as 14% on May 6 because it missed analysts’ adjusted earnings estimates and it lowered its earnings forecast for the year because of investments related to the partnership with BET, which is owned by Viacom Inc.
NetSpend’s intention with the BET deal is not to take on specific competitors, Dan Henry, chief executive of the Austin, Texas-based company, said in a May 6 interview. The goal instead is to continue expanding distribution as it has done with other types of partners, including insurers and check-cashing businesses.
“It’s not so much about getting into RushCard’s space at all,” Henry said. “It’s doing what we do, which is partnering with organizations that have got reliability, trust and reach into our target market.”
Of the 9.1 million U.S. households defined as unbanked–or that do not have a checking or savings account–36.9% are African-American, according to a 2009 study released by the Federal Deposit Insurance Corp.
NetSpend declined to discuss the financial arrangements of its partnership with BET but said the companies plan to release their product near the end of this year.
A spokesperson for UniRush LLC, the company that Simmons founded in 2003 to market the RushCard, declined to comment on NetSpend’s plans.
The RushCard “serves about 2.5 million members, and more than $1 billion is spent annually” on the cards, the spokesperson said in an e-mail.
Gil Luria, a senior vice president with Wedbush Securities LLC in Los Angeles who follows Green Dot and NetSpend, says it is too soon to tell how significant NetSpend’s partnership with BET will be
But all prepaid companies are looking for deals to expand their reach, he notes. “They’re growing very rapidly, and they’re finding new channels to sell through and the category’s expanding,” Luria says.
NetSpend also announced a partnership with Blackhawk Network, a subsidiary of Safeway Inc. that sets up gift and prepaid card displays in retailers. Through the partnership, Blackhawk will include a cobranded product used to load funds into NetSpend prepaid card accounts on its displays at about 20,000 retail locations.
The reload products like the one it plans to market with Blackhawk are not a major money-maker for NetSpend, but the deal will help expand brand awareness among customers, observers says.
“Prepaid is a volume business,” Jackson sys. “The only way you make money is you’ve got to have a lot of cards out there.”
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