NetSpend 2010 Annual Report Download - page 14

Table of Contents
with its operation of the iAdvance program. In addition, MetaBank announced that the OTS Directives will require MetaBank to obtain prior
written approval of OTS to, among other things, enter into any new third party relationship agreements concerning any credit or deposit
product (including prepaid access), or materially amend any such existing agreements or publicly announce any new third party relationship
agreements or material amendments to existing agreements. MetaBank further indicated that it cannot predict whether OTS will address other
compliance and supervisory matters, or the effect on MetaBank's results of operations or financial condition of any such OTS actions, although
OTS has informed MetaBank that it will address in the future OTS's expectations with respect to reimbursement of borrowers under the
iAdvance program. Future actions by OTS could seek to address other concerns that MetaBank indicated were factors leading to the OTS
Directives, including MetaBank's third-party relationship risk, enterprise risk management and rapid growth. We are not in communication
with OTS on these matters, and our information is limited to the information that is publicly disclosed and provided to us by MetaBank.
Based on further communications between MetaBank and OTS, we understand that the OTS Directives will require MetaBank to obtain
OTS approval prior to MetaBank executing new third party agency agreements with new distributor relationships established by existing
program managers such as NetSpend. This means that we will not, without MetaBank obtaining the prior written approval of OTS, be able to
enter into new agreements with distributors that are also parties to a third party agency relationship with MetaBank (or amend any such existing
three-party agency agreements), which would include any distributors that have the capability to issue cards and accept cash deposits on those
cards. Our distributors that do not accept cash deposits, such as our direct-to-consumer and non-standard auto insurance distributors do not
enter into third party agency relationship agreements with our issuing banks. Similarly, as a general matter extensions or renewals of our
existing distributor agreements do not require execution of new or amended agency agreements with our issuing banks, including MetaBank.
Therefore, MetaBank expects to be able to continue to service its existing third party relationship agreements, which would include our card
program management agreement and the existing agency agreements it has entered into with our distributors, consistent with their terms and
the OTS Directives.
In September 2010, we amended our agreement with Inter National Bank, one of our other issuing banks. Pursuant to the amendment, we
will transition our cards issued by Inter National Bank to another bank on or prior to July 2011, at which time Inter National Bank will cease
serving as one our issuing banks.
We are pursuing a bank diversification strategy pursuant to which we intend to diversify our cards among at least three issuing banks. We
are focused on doing so in a manner that balances our diversification strategy with the protection of existing cardholder and direct deposit
relationships and other operational considerations. In furtherance of this strategy, in January 2011 we entered into an agreement with The
Bancorp Bank, pursuant to which The Bancorp Bank will serve as a new issuing bank for our new and existing card programs. We expect to
begin marketing cards issued by The Bancorp Bank in April 2011. We have also continued our discussions with other prospective issuing
banks. For a discussion of the risks associated with changing issuing banks, see "Risk Factors—Risks Relating to Our Business—The loss of,
or change to, our relationships with MetaBank or our other issuing banks could adversely affect our business, results of operations and financial
position."
Technology
We develop and maintain all critical operations systems in-house. Our integrated end-to-
end operational and technology platform supports
a wide variety of core processing, client servicing and operational functions. Our proprietary systems include an account hosting database
infrastructure, an integrated layer of banking, cardholder acquisition, cardholder relationship management and transactions processing
applications, a range and variety of third-party client interfaces and a real-time
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