NetSpend 2010 Annual Report Download - page 13

Table of Contents
Transaction Processing
Processing and Authorization. A transaction begins with an electronic message from a merchant requesting funds from a cardholder's
account followed by a response from us authorizing or denying the transaction. In the case of an authorization, the cardholder's account is
updated to reduce the funds available in the cardholder's account. We electronically receive and respond to an authorization request through the
MasterCard, Visa or PULSE networks. The transaction is completed when a subsequent settlement transaction indicating the final purchase
amount is received by us, upon which we debit the funds from the cardholder's account.
Network and Telecommunications. We maintain our own networking systems designed to provide secure and reliable connections to
our distributors, issuing banks, cardholders and third parties, such as the card associations and other processors on whom we rely to provide
services that are integrated into our platform.
Customer Statements and Account Information. Cardholders can access their account status and recent transactions through our
customer service agents, through voice activation responses or by text messages to their mobile phones. Full account statements can be
accessed online and printed statements are available to the cardholder upon request.
Clearing and Settlement Process.
We have agreements with our issuing banks to undertake funds management and settlement processes
through the card associations and network organizations. All cardholder funds are held by our issuing banks in FDIC-insured custodial
depository accounts. Members of our distribution and reload network collect our cardholders' funds and remit them by electronic transfer to our
issuing banks for deposit in the card accounts. Loads made through direct deposit are routed from the originating depository financial
institutions through the Federal Reserve to our issuing banks for deposit in the card accounts. We provide a series of daily reports and
instructions to our issuing banks regarding the movement of cardholder funds.
Issuing Bank Relationships
Our issuing banks provide us with critical products and services, including the FDIC-insured depository accounts tied to our GPR cards,
access to the ATM networks, membership in the card associations and network organizations and other banking functions. All cardholder funds
are held by our issuing banks. Our cardholders are charged fees by our issuing banks in connection with the products and services we provide.
Further, interchange fees are remitted by merchants to our issuing banks when cardholders make purchase transactions using our prepaid debit
cards. Our issuing banks compensate us for our services based on these service fees and interchange fees. The revenues earned by our issuing
banks in connection with our prepaid debit cards consist primarily of returns earned on our cardholders' funds, as well as fees from additional
products and services of our issuing banks marketed with our GPR cards, such as overdraft protection.
MetaBank, which has been one of our issuing banks since 2005, is a federal savings bank that is a leading issuer of prepaid debit cards. In
January 2010, we amended our agreement with MetaBank pursuant to which we agreed to promote MetaBank as a preferred issuing bank and
MetaBank agreed to promote us as a preferred program manager. In order to further align our strategic interests with MetaBank, we also
acquired approximately 4.9% of the outstanding equity interests in Meta Financial Group, Inc., MetaBank's holding company.
On October 12, 2010, MetaBank publicly disclosed that the Office of Thrift Supervision, or OTS, issued a Supervisory Directive on
October 6, 2010, which clarified and supplemented an initial Supervisory Directive issued to MetaBank on August 31, 2010 (collectively, the
"OTS Directives"). The OTS Directives require MetaBank to discontinue offering its iAdvance product, based on a determination by OTS that
MetaBank engaged in unfair or deceptive acts or practices in connection
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