NetSpend Targets Banks, And They Are Not Alone

by Mercator Advisory Group 0

This article in American Banker indicates that NetSpend intends to target Financial Institutions as a new channel for its Prepaid Financial Services card:

“NetSpend Holdings Inc., a marketer of prepaid debit cards, is working with banks to broaden its distribution network beyond retailers and check cashers.

First State Community Bank, a subsidiary of the Farmington, Mo., bank holding company First State Bancshares Inc., will sell NetSpend-branded prepaid cards through its 33 branches, NetSpend (of Austin, Texas) said Thursday.

The cards give First State “another way to say yes to low- and moderate-income consumers who want to establish a relationship with their bank,” Dan Henry, NetSpend’s chief executive, said on an earnings conference call.

This new channel initiative is certainly not surprising, as Mercator Advisory Group has forecast that the Prepaid Financial Services market segment will grow by $159.8 billion between 2010 and 2013; based on growth in three areas: Existing Suppliers, New Entrants, and Financial Institutions.

There are multiple implementation paths that a financial institution can follow to implement a Prepaid Financial Services product, with each path delivering a tradeoff between implementation effort, implementation control, and revenue participation. The article indicates that NetSpend’s first client, First State Community Bank, will expend as little effort as possible:

“Under First State’s agreement with NetSpend, which issues its cards through other sponsor banks, First State will sell the same cards that NetSpend sells through its existing distributors.

The cards will cost $9.95 per month, or $5 per month for customers who use direct deposit, said Jennifer Lee, deposit operations manager at First State.

The bank will share revenue from the program with NetSpend, Lee said.

All account functions, including the issuing and mailing of cards will be handled by NetSpend and its partners,” she said.

While this approach makes implementation a breeze, it also limits the level to which the card can be profitably integrated into bank operations. For example, while cardholders can load money at the bank branches, deposits are not possible at bank ATMs nor are cardholders provided free withdrawals at bank ATMs.

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