The second major IPO of a prepaid card company is going to hit the street this week, with NetSpend Holdings Inc. about to launch as NTSP on the NASDAQ. The days leading up to the float have been bumpy for NetSpend, as one of its critical partners (Meta Financial, owner of MetaBank, the bank partner of NetSpend) came under scrutiny by a banking regulator. Here’s a quick look at the buzz surrounding the NetSpend IPO.

The Good

In the past few weeks, overall coverage of the upcoming IPO (in which NetSpend filed to sell 18.5 million shares, hoping to get between $10 and $12 apiece) has been positive. One reason for the positive outlook is that there is now a publicly traded benchmark – earlier this year, peer company GreenDot Corp. (NYSE:GDOT) went public. The GreenDot IPO was one of the more successful IPOs of 2010, and currently trades well over its release price.

As we have discussed before, by the numbers, NetSpend and GreenDot have slightly different cardholder bases, with NetSpend having a greater number of cardholders who load their cards with direct deposit. These cardholders “stick” longer than simple retail customers, and with prepaid cards, where revenue is based on usage and transaction fees, having sticky customers is critical.

NetSpend appears to be positioned well to continue to add payroll cards and increase the number of direct deposit customers who use NetSpend cards as a bank replacement.

The Bad

It’s a simple truth of the NetSpend model – they are reliant on their bank partners to continue to be able to offer the features and services to their cardholders. Their primary bank partner is MetaBank. While the OTS action against MetaBank does not directly affect MetaBank’s ability to continue to provide features and services to NetSpend, it does potentially impact MetaBank’s profitability and financial stability, adding a layer of financial risk to NetSpend’s relationship with MetaBank.

Further, some NetSpend cardholders will lose a feature or benefit of their cards – the ability to access a line of credit. Its unclear how material that feature or benefit was, or how many NetSpend cardholders will be impacted. However, in the prepaid card space, where the only “feature” that sets one card program apart from another is branding, a loss of any unique competitive advantage or selling point can potentially impact new account activations.

An excellent look at the pricing of the NetSpend IPO is at www.banktalk.org.

Based on the performance of GreenDot, we expect that the NetSpend IPO is likely a long term success, but some of the bumps in the lead up to the float may impact the short term performance of NTSP.