Big Beneficiary of NetSpend IPO: GreenDot

Green Dot Corporation GDOTThe on-again, off-again NetSpend IPO is… on-again. And it looks like one of the big beneficiaries of NetSpend’s IPO will be one of NetSpend’s biggest competitors: GreenDot Corp.
In the last few weeks, much attention has been focused on the planned (and pulled) offering by NetSpend (to be traded on the NASDAQ as “NTSP”).

Last week, NetSpend’s largest bank partner, MetaBank, received some bad news from the US Government, as their iAdvance product was paused by the OTC. As a result, NetSpend delayed their planned offering by a few days, and issued the following statement:

MetaBank is our preferred issuing bank, and as of June 30, 2010, approximately 71% of our active cards were issued through MetaBank. While we look forward to our continued relationship with MetaBank, we also believe it is prudent to have additional, active relationships in place as part of a diversification strategy. As part of this strategy, we are implementing a plan to proactively diversify our GPR card volumes among additional issuing banks and transition at least 15% of our non-corporate employer issued GPR card volumes, either from existing or new cardholder accounts, to one or more additional issuing banks within 90 days. Under this plan, on a go-forward basis, we intend to maintain at least three active issuing bank relationships. We also intend to enter into letters of intent or similar arrangements with two additional issuing banks that would provide us an opportunity to establish a definitive issuing bank relationship in a relatively short period of time. Finally, our board of directors will continue to review the adequacy and status of all of our issuing bank relationships on a regular basis.

In furtherance of our diversification strategy, on October 14, 2010, we executed a non-binding letter of intent with The Bancorp Bank for it to become an additional issuing bank for our GPR cards. In addition, on October 17, 2010, we entered into another non-binding letter of intent with H&R Block Bank for it to become an additional issuing bank for our GPR cards. We intend to work expeditiously to reach definitive agreements with The Bancorp Bank and H&R Block Bank.

The operational disruption has focused significant attention on NetSpend’s reliance on a primary bank partner for issuing its products.

In contrast, GreenDot Corp. has positioned itself to substantially reduce, or even eliminate its reliance on third party bank partners by taking steps to become a bank holding company. The market has responded well, with GreenDot stock trading up since NetSpend’s MetaBank woes were announced.

GreenDot benefits from Netspend IPO

GreenDot Corp also appears to be benefiting from the increased attention that the NetSpend IPO has brought to the prepaid sector, with at least one analyst raising their price target on GreenDot.

The NetSpend offering was priced at $11 each (in the middle of the offering range), raising $204 million with 18.5 million shares offered.

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