When Total System Services bought Netspend in 2013 for $1.4 billion, the processor called the deal transformative, and for good reason: In its 30 years of business at that time, TSYS had never had any consumer-facing products. With Netspend, a prepaid card marketer, that would change.
TSYS bought the company at a time when the prepaid card market was winning over an underbanked audience that many traditional banks failed to reach. The Netspend acquisition gave the processor a product that aligned well with the trends its clients wanted to tap into.
But for all the hype around prepaid, Netspend's new president, Kelley Knutson, is convinced that there won't be much talk about the "prepaid industry" in another 10 years. Like many other payment categories, prepaid will be absorbed into a bigger range of digital products and services, he predicts.
"Prepaid will be one product, one capability and one element of a broader set of emerging payment solutions that organizations like ours will be presenting and offering, either on our own or through partners," said Knutson, who was promoted to his new position and that of senior executive vice president at TSYS in January. Knutson has been with TSYS for 15 years, most recently as president of International Issuer Solutions in the London office.
In other markets, prepaid accounts are indistinguishable from mobile wallets, whether using cash or mobile minutes as a currency that can be exchanged and spent. A similar trend will occur in developed markets, blurring the distinction between a stored-value account and a mobile wallet.
Exhibit A might be the introduction of the Apple Cash card in the Apple Pay wallet. Apple Cash is meant to be used for P-to-P payments through Apple's iMessage platform, and it can be funded through a linked debit card. Similar initiatives allow companies to accept payments through Google Pay, Square Cash, Snapchat and Facebook Messenger, among others.
Rather than fear competition from this sort of new technology, Knutson said the evolution of Apple Cash and specific-purpose wallets, whether virtual or physical in nature, is going to help the prepaid business.
"In some ways those represent what we always have been and what we do," Knutson said. "When some of these alternative propositions are emerging, they will raise the profile in which consumers can compartmentalize their funds as to where and how they want to use those funds."
Such a trend raises the profile for the entire prepaid industry, making consumers realize it might not be a bad idea to look at what various prepaid cards have to offer, Knutson said.
Netspend has always put itself in position to have various products and distribution outlets in place, from United Mileage Plus to PayPal, 7-11 stores, Walmart and other locations. It boasts of 130,000 card reload locations and 120,000 distribution or employee locations.
Most recently, Netspend developed a partnership with Major League Baseball to issue Netspend Mastercard prepaid cards for individual teams, a card that fans can use to purchase tickets or items online or inside of the ballparks. It can also be used to pay for MLB.TV subscriptions.
"When you think about those brands and their distribution channels and what each is trying to do within their own online ecosystem, we think we will be able to extend some of our existing capabilities through traditional channels into a much broader set of propositions," Knutson said. "We welcome that kind of competition and awareness in the marketplace."
Netspend is likely to benefit from TSYS' move in acquiring merchant services provider Cayan this year, setting the table for the combined company to get more solid footing in the retail and small-business sectors.
"There is no doubt that the work going on in the merchant segment, particularly as we become a bigger player as a leading integrated solutions provider, and that some of the things we are doing at the Netspend segment will allow us to leverage to 730,000-plus merchants," Knutson said.
After all, Netspend customers generated $32 billion in gross dollar volume in 2017, and the company enjoyed revenue of $747 million within the overall $4.9 billion TSYS revenue for the year.
Netspend has 4.9 million active cards in the hands of consumers or businesses, with 2.4 million receiving direct deposit.
But challenges remain for those in prepaid, especially on the security side in light of the Equifax breach that has made millions of American consumers wary about the misuse of their personal information, said Steve Mott, principal of BetterBuyDesign, a Stamford, Conn.-based consulting firm.
Increasingly, criminals are taking that personal information and submitting fake Social Security or tax requests — and requesting direct payment to a prepaid card, Mott said.
"The flexibility that has allowed prepaid cards to cover gaps in financial services could turn on them in this case," Mott said. "Netspend has some very interesting security technology, but they will all have to step up their game if they don't want their products to become the facilitating instrument to cheat Americans out of their retirement and taxes."
Knutson views compliance to industry regulations and tight security as the key differentiators for Netspend in the coming years. The company's platform allows it to leverage the best security technologies available.
"It enables us to offer the types of products and services our users need and want, while also providing a secure environment to monitor the bad guys trying to leverage things on the broader payments ecosystem or penetrate our system or our competitors' systems," he said.
Overall, it will be important for Netspend to use its current technology wisely and focus on the areas to provide the best products and services for its customers, Knutson added.
"We have a lot of pieces to continue to expand our core general purpose reloadable offering and to pivot into virtual accounts and other technology in the small enterprise and small business space," he said.
It also does not hurt to be joined at hip with TSYS.
"Netspend was a good company to start with, but TSYS can help them mature to the next level," BetterBuyDesign's Mott said. "TSYS has always been a competent performer and have never really had any issues with security."