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Prepaid company NetSpend, which has struggled to grow since its successful IPO last year, is being increasingly talked about as an acquisition target.
August 24
Prepaid marketer NetSpend Holdings Inc., which recently lost some crucial distribution partners, has rebounded with 7-Eleven Inc.
Now customers looking to guzzle Slurpees and munch on doughnuts at the convenience store's locations can add money to their NetSpend prepaid cards at the same time.
NetSpend said Thursday that it is expanding its prepaid card reload network to include more than 6,000 7-Eleven stores nationwide. The Austin, Texas, company in the second quarter lost three unnamed check-cashing businesses as distributors when two were acquired and the third decided to
The company has struggled since then to grow its business, and
"The convenience factor is undeniable and 7-Eleven is a well-known name," says Ben Jackson, a senior analyst for prepaid advisory service at Mercator Advisory Group.
The deal makes reloading easier, which is critical in keeping customers with a prepaid card program. Jackson also says that the convenience store locations may help NetSpend reach its core customer group of the underbanked consumers who rely on alternative financial services providers instead of traditional banks.
"For people who don't have bank accounts, working as day laborers or other types of jobs that aren't set up for direct deposit, prepaid cards can be useful to those people," he says. "It also doesn't hurt that people have a generally positive association with 7-Eleven."
Customers who reload their prepaid NetSpend cards at 7-Eleven will have to pay $3.95, the maximum a business can charge for a NetSpend card reload. The prepaid marketer would not disclose the other financial terms of its deal with 7-Eleven.
NetSpend has been looking to grow its distribution channels beyond places like cash checking locations and non-standard automobile insurers. The 7-Eleven deal comes less than a month after NetSpend announced a deal with Blackhawk Network to sell NetSpend Visa prepaid cards at more than 3,000 retail locations starting in November.
"Our industry is trying to change systematic behavior for a large base of customers. We are telling them that they can step out of the cash based economy," Dan Henry, chief executive of NetSpend, told American Banker in an interview. "Having mainstream partnerships can only help in that communication."
The 24-hour nature of 7-Eleven locations appealed to NetSpend, which mainly serves underbanked consumers who might not be able to get to the bank during traditional business hours, Henry says.
But NetSpend still faces challenges in making the expansion successful, including informing current and prospective customers about the availability of reloading at 7-Eleven locations. Henry says the company plans on advertising the 7-Eleven expansion via its website, customer service, other partners and direct mail marketing.
Ensuring that 7-Eleven employees know how to reload money quickly may be an obstacle. Jackson notes this can be a challenge for convenience stores, which may have high turnover rates for employees.
"One of the ongoing issues is making sure clerks are trained on how to do this because people get sensitive about people handling their money," Jackson says. "You need to make sure it is fast and easy to do and that people are confident that their money ended up on their cards."
