If last decade's financial crisis proved anything, it's that
certain people have no business borrowing large sums of
This was brought into clear focus by the large number of
homeowners who got approved for mortgages only to find they
couldn't handle the payments.
In the years since, the credit markets have undergone a major
shift. Banks are much more careful about issuing loans and
extending credit. Many former homeowners are now renters, and
many former credit card holders must find others ways to buy
things with plastic.
For the latter group, one option is to get a prepaid debit
card like those offered byNetSpend Holdings (
NetSpend provides general purpose reloadable (
) prepaid debit and payroll cards and other products and services
to consumers in the U.S.
The company's GPR cards offer access to FDIC-insured
depository accounts with pricing and features tailored to
underbanked consumers. It is the nation's second-largest provider
of GPR prepaid cards in the U.S. based on active cards and gross
dollar volume loaded.
Load The Cards
Prepaid cards work like debit cards in that users can only
spend the amount of money they've deposited into their accounts.
The difference is, prepaid card users don't have to open a
checking or savings account. They simply load the cards with
money and begin using them to make purchases and pay bills.
Customers don't need a credit history to get the cards,
NetSpend's distribution network lets consumers buy and reload
prepaid debit cards at more than 100,000 locations, including
retailers, check cashing outlets, convenience stores, grocery
stores and insurance providers. Users can also load money from
their PayPal accounts onto their NetSpend cards.
In addition, NetSpend provides corporate payroll card products
that let employers deposit money straight into employees' card
NetSpend has produced steady revenue growth through the years
thanks to efforts to expand its distribution network and product
offerings. It has been particularly aggressive at widening its
footprint in retail locations, analysts say.
"The company has made a big retail push and signed new
contracts with several larger retailers, which should boost the
number of (retail) locations selling its card to 45,000 by year
end, up from 30,000 currently and 8,000 last year," John Kraft,
an analyst at D.A. Davidson, noted in a report following
NetSpend's third-quarter earnings report.
He says only 7% of NetSpend's current revenue comes from the
retail channel, "providing plenty of room for growth." NetSpend
continues to tap into the market by inking deals with large and
well-known retail brands.
During the third quarter, it signed an agreement withWalgreen
) to sell PayPal cards at its retail locations. It also signed an
agreement withCVS (
) to launch the sale of NetSpend and PayPal prepaid cards at its
In addition, NetSpend announced a multiyear agreement with
financial software firm Intuit to provide prepaid card services
for Intuit's TurboTax and QuickBooks products.
With that deal, NetSpend will offer its prepaid cards to
Intuit's 24 million TurboTax customers and 1 million
small-business QuickBook users for the upcoming tax season.
Analysts give NetSpend high marks for its ability to move into
new, potentially lucrative areas.
"We continue to view NetSpend as the best-positioned player in
the prepaid space given its diversified distribution channel
approach and good deal momentum," said Ashwin Shirvaikar, an
analyst at Citigroup.
In addition to expanding its roster of retail locations,
NetSpend also is expanding its product lineup. Among other
things, the company plans to launch a new feature, called mobile
minutes, which will be available free to its cardholders.
The feature lets users instantly add minutes to their prepaid
mobile phones through a simple text message. The top-up amount
will be debited from the NetSpend account in real time.
Cardholders will get a dollar back for each top-up
The mobile phone feature was added as a way of meeting
customer demand, says Gary Prestopino, an analyst at Barrington
"According to management, mobile phone expenses represent one
of the largest monthly expense categories for its customers with
about 30% of NetSpend cardholders using prepaid phones," he
NetSpend's growing lineup of locations and products has helped
it produce three straight years of double-digit-or-higher sales
and earnings growth.
The company is on pace to continue the streak in 2012 with
earnings rising at least 18% and sales increasing at least 13%
during the first three quarters of the year.
Earlier this month, NetSpend reported third-quarter earnings
of 15 cents a share, up 25% from the prior year and a penny above
Wall Street estimates. Revenue rose 14% to $84.9 million, in line
Growth in the number of active cards accelerated to 9% during
the quarter from 5% the prior year, led by a 25% gain in direct
"The growing mix of direct deposit cards also helped drive
strong growth in revenue per card (up 5%) and gross dollar volume
(up 18%)," Shirvaikar noted.
Most analysts expect NetSpend's momentum to continue into the
next several quarters. Those polled by Thomson Reuters look for
annual earnings to rise 23% this year and 24% in 2013.