Don’t think of prepaid products as only for the unbanked, or even the unhappily banked, says Chuck Harris, President at NetSpend. He’d prefer to think of it as a tool for the “self-banked” – those people who like and need the flexibility that stored value products offer. Harris sat down with MPD CEO Karen Webster to offer his insight on how serving the self-banked consumer, mobile, and the acquisition by TSYS a year ago has sharpened their focus in this growing market.
KW: It’s been a little over a year since TSYS acquired NetSpend, and at that time, TSYS called the acquisition “transformational.” You talked a lot about the opportunities that you thought the acquisition could present to NetSpend consumers and TSYS customers. What have some of those opportunities been?
CH: The integration has gone well, first of all. We have gotten all of our team members integrated into the TSYS culture, and our pipelines remain strong. Probably the most transformative thing for us is that historically, when we were working on business development, we spent a fair amount of time explaining to our target what NetSpend was. Now with TSYS as an owner, we have a huge amount of credibility and better relationships with companies. That’s certainly has helped us.
Beyond that, we’ve had the ability to leverage existing customers and relationships with TSYS, and we’ve expanded our bank channel and built a fairly robust pipeline.
KW: Give us a sense of what some of those things in the pipeline look like. What are some of the new opportunities that you can now focus on?
CH: I would say they fall into a few categories. The first is the banks within the TSYS franchise community. We’ve got a number of banks that we’ve talked to as a result, and we now incorporate TSYS assets in our proposals. It’s really just the nature of how to manage a distribution pipeline.
The second is medium to large merchants who have existing relationships. We can bundle our offering in with an acquiring solution where it makes sense.
Third, we have real interest in leveraging software integration. TSYS was in the early days one of the first to integrate software companies through the Vital acquisition. We look at that and our recent deal with Paychex as an example of where we look for software companies to integrate our solution into, because we have an integration tool kit for these companies to leverage their distribution.
Let’s talk about Paychex for just a second. Give us a sense of the market for prepaid payroll products.
CH: I think if you look through our lens as we distribute through banks, we see our bank pipelines for payroll and commercial prepaid products. By virtue of the acquisition, we’ve added prepaid disbursement and incentives through the TSYS-owned business smartOne. So when we go to a bank, it’s not just payroll but also disbursement. That’s really the core offering of that channel, and it’s really been impactful.
KW: The market for prepaid payroll products seems to be a logical use case for the product in a variety of sectors. The banks that are distributing that product to those businesses see demand. Has that changed over the last couple of years, and where do you see it going?
CH: We see tremendous growth there. It’s almost a perfect storm. The banks, by virtue of some of the regulatory pressure they’ve felt in other parts of banks like compliance departments has created demand for this. We see that in our pipelines. But it also creates opportunity for us because we’re a natural outsourced solution – we take on a lot of that headache for them as they focus on the regulatory challenges in other areas. We look much more attractive to them as a solution.
Banks are also looking to do more – they want to do business with fewer parties because of their overhead of managing third parties.
If I were to summarize our strategy, it would be to broaden the products that address the banks’ demand by virtue of their corporates as well as regulatory realities that they’re facing.
KW: I’ve been seeing innovators in the pay card market doing clever things with payday loan advances tied to expected direct deposits. What’s your view on that – does that make the product more valuable or too risky from a regulatory perspective?
CH: We try to focus on the consumer. There is absolutely a need and a place for credit products for these consumers, so we try to think about the right away to do that. In the broad set, we don’t start with the premise that it’s not appropriate. On the one hand we think it makes sense, but on the other there are right and wrong ways to do it. You really have to focus on disclosure and controls around habitual use, and do the right things to make the product appropriate for the consumer and acceptable to the regulators.
KW: What is your view on the impact of mobile in transforming the prepaid market?
CH: I think it’s huge – it really levels the playing field. We are in the business of providing a bank alternative solution. If you don’t have a bank account, all the things we take for granted, like going online to access your account, become difficult. Mobile devices like smartphones and tablets allow consumers who may not have internet access can now use these devices to do everything we take for granted.
We’re building products to do that. Last year, we revamped all of our mobile and online assets to leverage the growing online logins that we’re seeing to our site. We’re trying to address the flow of how our customers are using our site – it’s still very early on. In the future, I think there is even more we can do to simplify banking activities like money orders or bill payments. There are lots of opportunities there.
KW: What’s interesting about prepaid is that is started off as a product directed to an unbanked consumer but a lot of interest now is coming from those unhappily banked consumers who are looking for the same utility, but a different option. What are your thoughts?
CH: Both of those have always been part of the mix for us. We use the term “self-banked,” and there’s purpose in that. We look at it because it encompasses who can’t get a bank account, people who have one but don’t want to use it for this particular purpose, and people who are happy with their bank account but want to use prepaid for another reason, whether it’s security or some other driver.
What we’re seeing is that consumers are continuing to adopt prepaid – we have seen significant growth in our business – but I think in the future, you have to look at what are the transactions happening in mobile wallets and apps. Prepaid is really an account, it doesn’t necessarily have to be a card, and anyone can get it regardless of credit or financial standing. That’s attractive to people who are building mobile and e-commerce ecosystems and there’s a tremendous opportunity in the broader market for that.
KW: There was an interesting article in the New York Times about the challenges of celebrity-endorsed prepaid cards. Why is that particular type of product so difficult? One would think there’s attraction because of the celebrity endorsement.
CH: For one, it has to solve a real need. Consumers aren’t going to be duped by a name. I also think putting distribution together is important – putting a name on a card without having a robust distribution model and the economics to support it is very difficult. We looked at a couple that never made it to market, and I’d say that’s why. But, I wouldn’t declare it dead.
KW: You’re now President of NetSpend. What does the next 100 days look like for you at the company?
CH: Well, I’ve been here four years, and I’ve worked pretty closely on the strategies and approach we follow today, so I wouldn’t expect a huge shift. We continue to focus on diversified distribution, direct deposit, leveraging the synergies that come with TSYS and the product roadmap. We are heavily engaged in Washington so there will be a fair amount of visibility there.
Chuck joined NetSpend in July 2010, and is responsible for the Partner, Direct and Corporate Payroll Card lines of business, as well as NetSpend’s Technology, Customer Service and Operations teams. With nearly 20 years of experience in the payments industry, Chuck brings to NetSpend a wealth of knowledge gathered during his career at well-known companies including Intuit, Electronic Clearing House (ECHO), Paymentech, and EDS. Immediately prior to joining NetSpend, Chuck served as the General Manager of Intuit’s Payment Solutions Division where he managed a 900-person team delivering payment solutions to millions of small businesses. Chuck is committed to providing industry leading financial services to the underbanked, empowering them to live their lives to the fullest.
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