By John Egan
NetSpend is a prepaid pioneer. The Austin, Texas-based company, founded in 1999, provides reloadable prepaid cards and related financial services in the US. A prepaid card looks like a debit card but isn’t connected to a bank account. NetSpend’s target market: the estimated 68 million consumers in the US who don’t have traditional bank accounts or who rely on alternative financial services, such as money orders.
“Prepaid customers are savvy, and they are looking for established, trusted brands they know will deliver the features, experience and value they need in a bank alternative,” said Chuck Harris, president of NetSpend. NetSpend, an exhibitor at the upcoming LeadsCon New York, competes in a fast-growing segment of the financial services sector. Mercator Advisory Group, a market research company covering the payments industry, estimated that $167 billion was loaded onto prepaid cards in 2014 in the US, up from an estimated $117 billion in 2013.
A survey by Mercator found that 56 percent of US adults bought prepaid cards in 2014, up from 53 percent in 2013 and 47 percent in 2012. Ben Jackson, director of Mercator’s Prepaid Advisory Service, said the fluctuating economy has made the market for prepaid cards “much more dynamic.”
“Even if they have a checking account, many US consumers are attracted to prepaid cards as a money management tool that lets the cardholders control their spending and make electronic payments from funds they set aside, without accruing debt from credit cards or attaching their bank account to the transaction,” said Karen Augustine, manager of CustomerMonitor surveys at Mercator. “Prepaid buyers are more likely to be younger, mobile-enabled, and are more attracted now by enhanced security and mobile banking features.”
NetSpend sells its prepaid cards online as well as at grocery stores, convenience stores, drugstores, check-cashing shops and other locations. TSYS, a payment-processing company, scooped up NetSpend in 2013 for $1.4 billion. NetSpend went public in 2010 in a $204 million IPO. Three years earlier, Capital One and NetSpend called off their proposed $700 million marriage.
The acquisition of NetSpend appears to be paying off handsomely for TSYS. In the second quarter of 2015, NetSpend posted year-over-year revenue growth of 21 percent, generating $141.6 million. That represented the 14th consecutive quarter of double-digit revenue growth for NetSpend.
Also during the second quarter, NetSpend grew its relationship with Wal-Mart, extended its partnership with MetaBank and teamed up with Ingo Money to allow instant access to money using Apple and Android devices.
Those relationships are helping NetSpend increase its footprint in the multibillion-dollar market for prepaid cards. “Prepaid cards are transforming the way consumers engage with the financial services industry. Over the past decade, millions of American households have turned to prepaid cards to spend, save and manage their money,” according to the Center for Financial Services Innovation.
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