Netspend is focusing on "overlooked and emerging segments" to expand its prepaid card services, according to company president Chuck Harris. And it's making some very unconventional alliances along the way.

Prepaid has long been seen as a financial tool for the underbanked, or a complementary product that banked consumers use for budgeting. As such, the marketing around prepaid is often more about accessibility and fees than rewards.

This week, Netspend bucked this trend in becoming the first prepaid card program in the U.S. to offer its users the ability to earn miles for qualifying purchases through the MileagePlus Go Visa Prepaid Card with United Airlines.

United Airlines check in
Netspend's new alliance with Visa and United Airlines lets prepaid card users earn miles. Bloomberg News

"We have an opportunity to grow outside of the current prepaid market and take advantage of some trends in the consumer space," Harris said. "As the desire for a physical bank account dwindles among many consumers, we are ready to move up the market and serve a more mainstream customer with our cards."

The desire for consumers with prepaid cards to earn miles when making qualified transactions is only one of the significant trends Netspend will address this year, Harris said May 24 during a Total System Services Inc. investor day presentation (Netspend is a unit of TSYS). "As things go more digital, we have moved beyond the prepaid card and into new transaction types," he said.

Netspend remains a major player in the prepaid market, currently serving more than 5.1 million cardholders and operating a network of 130,000 locations for users to reload their general-purpose reloadable cards.

And the company is still fighting prepaid's traditional foes. "Non-consumption [in a weak economy] remains our biggest competitor … and the highest order of competition is still cash, because people are still using cash in their old way," Harris said.

Netspend's mobile hub will offer broad financial solutions that address small business owners and self-employed consumers. The company has developed a reloadable prepaid card for those who earn tips on their jobs, one in which employers can automate payment of those tips to the card at the end of a work shift, Harris said.

Netspend has also bolstered its relationship with 7-Eleven convenience stores in developing a 7-Eleven Transact mobile app for in-store bill payments.

Netspend has estimated that the prepaid industry was growing at about 5% annually, but investors questioned whether double-digit growth is within reach after regulatory concerns dissipate.

"There are some studies out that hit around this 5% growth rate, and a lot of it depends on how much of that consumer base of 70 million gets penetrated," Paul Todd, chief financial officer at TSYS, said. "I think that is the key driver of moving that growth range in a materially different way."

Executive comments at the presentation came on the heels of TSYS last month delivering a strong financial first-quarter report in 2017, citing double-digit growth in revenue and income.

The company can always change its direction and seek to expand into new segments, CEO Troy Woods said, but TSYS will essentially concentrate on improving or expanding in its already established three key areas of serving issuers, merchants and prepaid customers.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry