Let’s acknowledge that someone has to pay for everything.

When Visa and MasterCard impose a fee on credit and debit card transactions, retailers have to pass on their costs through higher prices. If you use a credit card, VISA and MasterCard generally charge between 1 and 2 percent of the transaction amount. With a debit card, the fees are lower. Using a card with miles or another rebate costs more. Using the card (more…)

Big banks have already said that they intend to enter the prepaid card market, but their success or failure is far from certain and could hinge on how they frame the purpose of the entire space.

Banks are no longer going to offer free checking willy nilly. You will have to have a hefty deposit account, or use other services that generate enough revenue to justify the costs to the bank. It is the (more…)

The Bancorp Bank (TBBK) will issue some of the debit cards marketed and distributed by NetSpend under a new, multi-year agreement announced this morning.

While not an exclusive agreement, it is an important event that marks the first step in NetSpend’s Bank Diversification Strategy.  NetSpend has been clear about its desire to find more bank partners. Last year, NetSpend’s initial public offering was upset when the OTS issued a directive to MetaBank on the week that NetSpend had intended to (more…)

This week, Green Dot and NetSpend announced results for their third quarter earnings.

People have high expectations for companies with an established foothold in the prepaid card market. Every year, analytics firms publish estimates that predict more than 100 percent growth in reload volume, consumer accounts, and revenues. Every year, prepaid companies make reports that they have realized these gains.

Green Dot followed suit on Tuesday with some positive news. They more than satisfied investors when they reported thirty cents in EPS.

NetSpend (NTSP) did well, but not well enough. They paid off some of their debt with proceeds from their IPO. They managed to add 400,000 new accounts. Almost one in three cards is now direct deposit-enabled, compared to only 25.7 percent just one year ago. Gross dollar volume jumped by 33 percent year-over-year.

For most companies that would be a “door-blowing” report. Unfortunately, NetSpend has some high standards to meet. This is a company with a price-to-earnings ratio of 68. Compare that to the market as a whole, where the average P/E is more like 16.

Their shares dropped almost 8 percent before regaining a bit later in the day. Analysts though that they would report about $278 million in revenue, but NetSpend fell short.

Even if the numbers aren’t perfect, they aren’t bad, either. NetSpend still hasn’t resolved some of its issues, though. They haven’t resolved their situation with MetaBank. They’ve announced intentions to add three new bank partners. They have non-binding letters of intent with Bancorp Bank (TBBK) and Block Bank (HRB). The 10-q says that new relationships are at least 90 days away.

The lack of an answer with respect to new bank relationships is a problem, and it comes at the wrong time. NetSpend’s 10-q contains this gem:

the most significant increases in the number of our active cards and our GDV typically occur in our first fiscal quarter as a result of consumers acquiring new cards and loading federal tax refunds onto their cards during tax season. In addition, the number of our active cards and our GDV typically increase from our third to fourth fiscal quarters as a result of increases in holiday employment and holiday-associated consumer spending.

That means that NetSpend is going to enter into the tax refund season without a long-term answer for their card issuer. None will replace (more…)

Following on an earnings report that exceeded everyone’s expectations, Green Dot announced that it will offer another round of shares to the public.  A date for the IPO was not given.

Green Dot completed an IPO this summer. Its shares found a price of approximately $34 per share. Since then, Green Dot shares have been on a roll. Today they are trading at a range between $53 and $54.

The IPO will not dilute the value of existing shares. The company says it expects to generate about $100 million (more…)