Netspend looking for place to park 'hundreds of millions' in deposits

Payment company Netspend Corp. aims to add at least two more US bank partners to issue cards for payment processing and hold a portion of its more than $1 billion customer deposits.

"I want to grow, and I'm ready to move hundreds of millions of dollars of the deposits to banks that want to innovate and serve the underserved, and billions of dollars of monthly transaction volume to partners that want to grow," said Roy Sosa, who has recently taken back the reins at the financial technology business he helped co-found.

Netspend would park at least $100 million in deposits at each new bank partner. It currently works with four card issuers in the US: Pathward Financial Inc., Republic Bank & Trust Co., The Bancorp Inc. and new bank partner Texas First Bank.

Netspend plans to work more with Texas First and Republic Bank to diversify its banking relationships that currently lean toward Pathward, Sosa said.

"We today have in excess of $1 billion in deposits at any given time," the chairman and CEO said in an interview. "And I don't think that it's in the best interest of the company, consumers or regulators for those deposits to be concentrated in any one bank."

Access to deposits is becoming more important for banks as they have sought to bolster funding and increasingly turn to more expensive products in the higher interest rate environment. Netspend's plan to add bank partners comes as banking-as-a-service continues to grow among US community banks. The advantages of working with an established fintech company have become more attractive to those community banks, since early-stage companies pose higher risks in financial soundness amid an ongoing funding squeeze.

In hypergrowth mode

Netspend was founded and led by brothers Roy and Bertrand Sosa in 1999. They would leave management roles just before Netspend's IPO in 2010. However, with support from Searchlight Capital Partners LP, they bought back Netspend's consumer business through venture Rêv Worldwide Inc. from prior owner Global Payments Inc. for $1 billion.

The payments company is now poised to enter a hypergrowth phase, and it aims to grow itself by 10x in the next five years, Sosa said.

"Bringing back the high-growth, product innovation culture to Netspend is very exciting given the scale," he said.

To bolster that growth curve, Netspend needs more new bank partners to help win more deposits, process more payments and add to product lines.

Netspend has been working with Pathward, then called MetaBank, since 2005. It previously promoted Pathward as its preferred bank, which issued 71% of Netspend's cards, according to a 2010 SEC filing. At that time, Pathward faced regulatory problems, and Netspend said it planned to shift at least 15% of its prepaid debit card business away from the company.

Pathward declined to comment on its relationship with Netspend.

While Netspend's website also listed Regions Bank as a card issuer, that relationship will stay with Global Payments after the carveout, according to a Netspend spokesperson.

Netspend is also on the lookout for acquisitions. It recently signed a definitive agreement to acquire a fintech in Europe, with e-money licenses across 26 countries in the European Union, Sosa said.

The fintech would welcome new bank partners that have expertise in credit and insurance products, especially renters insurance. A majority of its business currently relies on prepaid debit card products. While prepaid card programs tend to be fee-intensive, Netspend wants to add new products to diversify its revenue streams, said Sosa.

Aiding with CRA compliance

For new partners, Netspend prefers community banks that can resonate with its mission to reach the underbanked.

Netspend is committed to investing in the communities where it captures deposits and is working on a new credit product that will offer affordable credit financing to consumers and help them build credit records, Sosa said.

These initiatives at Netspend could help its bank partners to enhance regulatory compliance around the Community Reinvestment Act, the executive said. It also means growth opportunities for banks, since Netspend has programs catering to Hispanic communities with growing populations.

An ideal bank partner would also have "an unblemished relationship with their regulator," Sosa added.