The success of NetSpend's IPO, with shares finding a price of $11, has now been echoed and perhaps even amplified by the subsequent demand for those shares during the first two days of their trading on the open NASDAQ.
NetSpend's success illustrates an important lesson. Companies can still be very profitable without offering high-cost credit. There are tens of millions of unbanked households. They need some access to the payments system. Warren Buffet would love this business, because it comes with a good moat and because there are plenty of untapped consumers. Offering them a debit card is enough.
NetSpend wanted to get between $10 and $12 for their shares. On Monday, they got $11 per share, without the i-advance. Two days later,
the shares are worth even more.
As I write, NetSpend (NTSP) shares have reached a high of $13.89. That gives NetSpend a market capitalization of $256 million, or about
$50 million more than those shares were worth on Monday evening.
NetSpend may decide to seek a new bank partner that will offer a line of credit to its customers. Their management has not commented about the possibility.
Getting credit bank on to those cards could be an uphill battle. They will face the watchful eye of the new Consumer Financial Protection Bureau. Their bank partner will most likely have to satisfy the concerns of Mark Pearce, the new Director for Consumer Protections at the FDIC. Consumers could hardly hope for a better champion than Pearce, a former counsel for the Center for Responsible Lending. Pearce subsequently went to work for the North Carolina Commissioner of Banks, where he helped to orchestrate a strong response to the foreclosure crisis in North Carolina.
Hopefully, the implications of NetSpend's IPO will not be lost on its rivals.