When Republic released news that its contract to provide settlement products with Liberty was going to be canceled, it left open the question of Liberty's ultimate intent for the upcoming tax season.
In 2012, more than half of Liberty's customers utilized a tax settlement product.
A recent filing from Liberty suggests that the company will go it alone, rather than renegotiate with Republic or find another partners for financial products. The filing states that Liberty will cash flow its products through its JTH Financial subsidiary. In Liberty's view, this is good news for their revenues:
"We believe the negative effect of fewer refund-based loans will be offset by two factors. First, we believe that most customers who previously would have obtained loans have elected to purchase a refund transfer product, and that the continued availability of these products will enable us to experience similar financial product "attachment rates" as in prior years. Second, as we continue to offer more of our financial products through our JTH Financial subsidiary, we expect to be able to realize more of the fee income associated with financial products."
Liberty actually sold more financial products in 2012 than they did in either 2011 or 2010, in despite of the regulatory disruption.
While Liberty cannot tap a bank for a refund anticipation loan, the company still intends to offer advances through their JTH Financial subsidiary. This might limit the raw volume of advance money available, but they will be there nonetheless.
It is their experience that absent the choice of a loan, customers generally opt to take a refund transfer instead. Some of that ends up being supplied through a check. But many use that moment to start a debit card relationship. In 2012, seventeen thousand customers - almost one of every twelve filers served by Jackson Hewitt - opted to sign up for a Liberty-branded NetSpend debit card.
Here is the key: in a regime where Republic has no bank partner, they can keep all of the settlement product revenue within their own corporate family. Thus, the logic makes sense. By dropping a partner, the company gains a greater share of the payments made by their customers. The only downside is risk.
It looks like Liberty will use this chance to add to its franchise network as well:
"Because of the uncertainty surrounding the availability of financial products, the difficulty that many independent and smaller tax preparers are having accessing sources of financial products, and an increasingly cumbersome regulatory climate, we believe that there is an opportunity to convert independent tax preparers, including smaller multi-unit operations, to Liberty Tax franchisees."