NetSpend (Nasdaq: NTSP) provides general-purpose reloadable prepaid debit cards and other financial services, including mobile banking, to the underbanked -- people who don't have a conventional bank account -- a number that sits at around 60 million in the United States. Prepaid debit cards are a growth industry, with expectations that up to $672 billion will be loaded onto these instruments within three years. That's a lot of money, and companies like NetSpend are poised to take advantage of this trend.
For a time last year, NetSpend was hitting the skids, with its stock falling to a low of $3.90 per share. It's up to $7.95 as of this writing, and its performance over the last three months shows an almost 16% improvement. Where will this stock go? I believe it will continue to climb, for a couple of reasons.
Unemployment is declining, and ditching banks is now cool
People are going back to work -- not in droves, but it is happening. Jobs put more money into people's pockets, money that needs to be managed somehow. For many who may be just getting back on their feet again, using services like those of NetSpend may be cheaper and more convenient than using conventional banks -- particularly those banks that charge a lot of fees. Another factor is that many did not survive the recession with their savings or credit rating intact, and may not have enough funds to open a bank checking account or good-enough credit to obtain a traditional credit card.
The movement to leave large, fee-levying banks in favor of smaller institutions has now lent credence to the idea of using a prepaid debit card in lieu of a checking account, as financial advice maven Suze Orman's own brand of card promotes.
Other players are entering the field as well. American Express (NYSE: AXP) is beginning a trial of its own prepaid reloadable card at select Wal-Mart stores on the West Coast as it attempts to appeal to less affluent customers who wouldn't normally use their charge cards. Wal-Mart already has its own prepaid card product, administered by Green Dot (NYSE: GDOT), which it will continue to offer.
Fool's Take
The GPR prepaid debit-card market is undoubtedly expanding, and growth looks particularly good for NetSpend, which also offers customers other financial services such as savings accounts and direct deposit. (Competitors such as Green Dot, which has taken a hit since the debut of the American Express card, market the debit cards almost exclusively.) Offering more services should give NetSpend the edge, helping it retain customers even as they become more financially stable. If it can keep up its current growth rate, it looks like NetSpend will ring up a very profitable year.
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