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October 12, 2010

Goldman Sachs will run an initial public offering for shares of NetSpend this week. With the exception of two million shares already held by investors that will be put into the IPO, it will bring lots of new equity to the company.

This has been a coming-out summer for alternative financial services companies. NetSpend filed an S-1, the form used by potential IPO registrants to demonstrate their value to shareholders, on July 15th. Green Dot had an IPO earlier in the year. Buy Here-Pay-Here used care retailer Drive-Time had said that they would offer shares. Although DT did subsequently withdraw their IPO, the underlying fact remains: in a stagnant IPO marketplace, investors are making an exception with companies in the "shadow banking" system. NetSpend differs from other prepaid card companies (Green Dot, Blackhawk, Rush Card) in that it comes closes to providing a vertical set of services. NetSpend has to partner with a bank, but short of that, it does just about everything else.

I like to evaluate a prepaid card company by how it makes its money. There are plenty of ways to pick

October 5, 2010

I had a productive trip to Kansas City on Thursday.

H&R Block's annual shareholder's meeting was held in the theater of the Kansas City Repertory Theater. There was a table set up in the lobby. I signed in. I was the third visitor. The letters "H.K" had been scrawled in the previous entry.

From the start, the leadership at H&R Block was extremely gracious. The General Counsel met to go over some basic ground rules for the meeting. He explained the agenda and directed me to a seat near a microphone. A few minutes later, Alan Bennett introduced himself.

As soon as I sat down, a man in a blue embroidered polyester vest and matching pants turned around. He raised his eyebrows. The message was: I'm with you here.

September 15, 2010

Prepaid card companies are seeking out relationships with non-profits that provide direct services to clients. For the card companies, it is a winning prospect. They get new customers, and they gain the benefit of partnering with groups that are perceived as trustworthy to low-income households.

The Center for Financial Services Innovation has a new research report out today that serves as a guide for how non-profits can engage with card companies.

The main point of the CFSI report is to create a framework for how non-profits can make those decisions. This is a worthwhile premise, because a non-profit facing the decision of whether or not to partner with a prepaid card companies must wade through some difficult questions.

If you understand how for-profit prepaid card company makes money, then it becomes

August 16, 2010

From a first glance, linking a savings account to a prepaid card seems like a "no-brainer." Ah, but with a brain comes the realization that everything on these cards has an incremental cost, and the best way to make them work is to lower their ultimate cost to the consumer.

July 27, 2010

I have seen the light, and it is shining on Green Dot.

In a number of posts, I wrote that Green Dot's claim to the contrary notwithstanding, that there was no real verifiability to the promise that they would not attach credit products to their cards. Green Dot has a presentation that it is circulating on their business plan, and it even states that there is no intention in the "initial plan" to offer credit.

I was suspicious.  The words "initial plan" seemed tentative, at best. They didn't do much to allay my fears about the makeup of their board, which does include two members with ties to payday lending.

But I've changed my mind. Yesterday, I was able to talk with Green Dot's Steven Streit and Lewis Goodwin on a video

July 23, 2010

A story out today in ESPN identifies the use of prepaid cards as an emerging enforcement problem. In some instances, less-than-scrupulous actors are willing to funnel cash to players through these cards.

Slightly different than a loan, these allow an agent to offer a constant stream of cash by giving a prospect or a prospect's family member a card with a cash value that can be constantly stuffed with more money, not unlike an actual bank account. The kicker: As of now, the NCAA has no way of tracking the transaction.

"That's the latest one I've heard,'' said one coach.

This is a new iteration on an old practice. Sports agents have been in trouble in the past when they have provided financial support to families.  The only difference is that then it was harder to cover things up. Witness what happened

July 21, 2010

NetSpend announced plans last week to sell shares through an initial public offering.This is an important moment in the prepaid field, and when coupled with the Green Dot IPO this week, it should signal that the prepaid card market is maturing.

We know that prepaid cards matter, because they may be the main financial tool for the unbanked market in the near future. The FDIC says that 60 million adults, or about one in four in the US, are unbanked. Even though these individuals don't use a bank, they still make payments. In 2009, they sent about $1.1 trillion. That's a lot of money. Prepaid cards are only beginning to reach this market. According to NetSpend, about one in six unbanked has a prepaid card for some purpose. NetSpend has more than 2 million card accounts right now.

About NetSpend

There are two private equity firms with existing investments in NetSpend: JLL Partners and Oak Investment Partners. Oak has a controlling stake. JLL catches my attention, though.

JLL Partners is a mid-stage investment in New York. JLL has some of the characteristics of Sequoia, a private equity firm that has a stake in Green Dot. Like Sequoia, JLL is not focused on one sector.  Aside from NetSpend, they have positions in an overhead door company, a community bank, an aerospace manufacturer, and a pharmaceutical research firm.   Actually, to say that they have no focus is not quite true, because they are very active in health care and pharmaceuticals.

Still, they are like Sequoia in that they do have exposure to more than one firm in the financial services market, and

June 3, 2010

Account Now is bringing a new line of credit to holders of its prepaid debit cards. The new card is known as the Account Now Gold Visa Prepaid Card.

The catch is that account holders have to establish direct deposit on to their card.

The Gold Visa Prepaid Card is marketed by Account Now, but it is issued by MetaBank. MetaBank is a small bank in Storm Lake, Iowa.  They issue cards through many different marketing groups, including NetSpend and Account Now. They also have partnerships with payday lenders, online poker sites, and pawn shops.

April 19, 2010

BankTalk's readership is surging.  Last month, we reached more than 17,000 viewers.  That is up from 12,000 in February and just 8,000 in January.  Thanks to all of the interest.

From what I can tell, we have a fairly diverse set of readers:

March 24, 2010

When a company that gets 70 percent of its revenues from Wal-Mart announces that it is going to buy a small state-chartered bank, it seems relevant to wonder what the real impact of this acquisition might be. After all, it is possible that this new bank will expand to meet all kinds of banking needs through Wal-Mart's stores.

Since 1996, WoodForest National Bank has had small bank branches in a number of Wal-Mart stores.  The branches offer basic checking, individual retirement accounts, savings accounts, and certificates of deposits.  Checking accounts come with a MasterCard ATM card. Consumers with a ChexSystems record can still get a "second chance" checking account, while regular consumers have a choice of free checking or Choice checking.  The latter has a balance requirement.  The Wal-Mart stores also offer a chance for consumers to get the GoDirect/DirectExpress card.  GoDirect is an ideal prepaid card that can store government payments. GoDirect cards are issued by Comerica.

They do not offer mortgages in the stores, and the mortgages that they offer through their national headquarters in Woodlands, Texas are limited to refinance loans.

The Wal-Marts still have a bifurcated set of financial services. When you check out, you will see Green Dot prepaid cards. These cards do come with fees, although Wal-Mart has negotiated lower fees with Green Dot for those cards.  There are monthly fees, cash checking fees, and a few other costs.

This two-headed approach could soon change.  Green Dot announced an intention at the end of February to buy Bonneville Bank for $15.65 million. Bonneville is a small bank. It has only 10 employees and equity capital of just $6 million. Its greatest asset is probably its Utah charter.

Green Dot would appear to have big plans for Bonneville. Green Dot has already said that they will put another $10 million in capital reserves into Bonneville.  Given that Bonneville already has a 31 percent tier-one capital ratio, they will be sitting on a lot of

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