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Global Payments Mulling Over Netspend Sale for Business Rejig

Zacks Equity Research
·4 min read

Talks are doing the rounds that Global Payments Inc. GPN is looking to sell its prepaid debit card business named Netspend. This business is housed under the company’s smallest operating segment called Business and Consumer Solutions, which contributed to 4.6% of the company’s total 2019 revenues and accounted for 0.4% of the company’s operating income in the last year  The business is mainly concentrated in America.

Netspend is a 21-year old company offering rechargeable debit cards for personal and business usage. It serves an estimated 68 million underbanked consumers by giving them convenience, security and freedom. The company caters to those people who don’t have a traditional bank account or who prefer to use alternative financial services.

Some of the partners of Netspend are Walmart Inc WMT 7-Eleven and Western Union Co. WU, PayPal Holdings Inc. PYPL, Ace Cash Express, Brinks Money among others.

Netspend was added to Global Payments after the latter acquired Total Systems, transaction of which was closed in September 2019.

Its revenues principally consist of fees collected from cardholders and fees generated by cardholder activity in connection with the programs managed by the company. Customers are typically charged a fee for each purchase made using their cards, unless they are on a monthly or an annual service plan wherein the customer is instead charged a monthly or an annual subscription fee.

Customers are also charged a monthly maintenance fee after a specified period of inactivity. The company also charges fees associated with additional services offered in connection with their accounts including the use of overdraft features, a variety of bill payment options, card replacement, foreign exchange and card-to-card transfers of funds initiated through its call centers.

Netspend products and services compete with other demand deposit account and prepaid debit account program managers to provide financial service solutions for the underbanked, and other consumers and businesses.

Other players in this space include Green Dot Corporation, InComm and Fiserv Inc. As of Dec 31, 2019, the company stood as one of the two largest prepaid program managers in the United States, based on gross dollar volume (total spending on the accounts that it manages) processed during the company.

In the last reported quarter, its business and consumer solutions segment delivered adjusted net revenue growth of 11%, marking the highest quarterly revenue growth in nearly three years. NetSpend benefited from strong trends in gross dollar volume, which increased 19% for the quarter, partly driven by its support of disbursing more than $1.4 billion as stimulus funds under the CARES Act. It is also facilitating the distribution of unemployment and other government aid to both the existing and new customers during the ongoing challenging times.

The company has all these years been making acquisitions to rev up its core business of  providing cutting-edge payments technology and software solutions to 3.5 million merchant locations as well as more than 1,300 financial institutions.  

Going forward, we would like to see the company working on its strategy to grow and control its direct distribution capabilities by adding channels and partners.

Its competitive strengths, such as global footprint and distribution platforms, innovative technology solutions, scalable operating environment (by virtue of its multi-channel, global technology infrastructure, strong and long-lasting relationships with many financial institutions and a disciplined acquisition approach bode well for the long haul.

In six months’ time, the stock has gained 24.13% compared with the industry’s growth of 20.9%.

The stock carries a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Walmart Inc. (WMT) : Free Stock Analysis Report
 
The Western Union Company (WU) : Free Stock Analysis Report
 
Global Payments Inc. (GPN) : Free Stock Analysis Report
 
PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
 
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