Netspend And Green Dot Look Risky, As Chase Elbows Into Prepaid Debit Card Market

Includes: GDOT, NTSP
by: Tim Chen

NetSpend (NASDAQ:NTSP) and Green Dot (NYSE:GDOT) shareholders have seen a competitive onslaught of low-priced competition this year. Unfortunately for these two companies, the nation's largest bank has just joined the fray.

This morning, Chase (NYSEMKT:CCF) announced its plans to launch the Chase Liquid(SM) reloadable card, which is currently piloting at 200 branches, and will be made nationally available this summer.

The Incumbents

Before I dive into the Chase offering, let me outline the economics behind the Greendot and NetSpend cards. Excluding interchange fees, these two companies earn service and reload fees of over $7, and over $9 per cardholder per month, respectively.

Also, as a basis of comparison, the most popular prepaid debit card in the country is offered via a partnership between GreenDot and Wal-Mart (NYSE:WMT). This card is distributed at just over 3,200 Wal-Mart locations in the United States. Reloads are cheapest at Walmart, although you can reload them in thousands of other locations as well, through the GreenDot network.

The Competition

The Chase card comes with a $4.95 monthly fee and charges nothing for deposits and withdrawals made at Chase ATMs and branches. Balance inquiries are free at Chase. In comparison, the Wal-Mart MoneyCard costs $3 per month, but comes with a host a of other fees.

If you assume that you can stay in network at Chase, then the card is far cheaper than incumbent offerings from GreenDot and NetSpend. This is a fair assumption because Chase offers a network of 10,500 ATMs accepting deposits nationwide, and 5,500 branches nationwide. Chase also has 17,500 ATMs from which to withdraw cash for free.

A balance inquiry on the Wal-Mart card costs $1, an ATM withdrawal costs $2, and a reload costs $3 at Wal-Mart, and upwards of $4.95 elsewhere in the GreenDot network.

The Chase card isn't even the cheapest offering by a national bank. The US Bank Convenient Cash Card, launched Nov 1, 2011, offers pretty much the same terms as the Chase Liquid(SM), at only $3 per month, with free access at over 3,000 US Bank locations and over 5,000 US Bank ATMs.

In fact, the 40+ prepaid card offerings included in NerdWallet's Prepaid Debit Card comparison engine should raise eyebrows in terms of the competitive landscape going forward.

Major competitors that outrank the Wal-Mart MoneyCard on NerdWallet's tool, in terms of fees, include Chase, US Bank, Western Union (with over 450,000 locations in 200 countries from which to hawk their cheaper Gold Visa Prepaid card), American Express (NYSE:AXP), H&R Block (NYSE:HRB), and Capital One.


The primary sales avenue of both GreenDot and NetSpend remains retail partnerships with places like Wal-Mart, CVS, cash checking centers, and payroll partnerships. These relationships will have to strain under new competition for these two shorts to really work out, but I think that is a likely outcome given the industry's new focus on exploiting this market segment.

When four of the nations' 10 largest financial institutions enter a market within a short time span, chances are that more will follow suit. This is generally not a good situation for the incumbents.

Disclosure: I am short NTSP.