NetSpend 2010 Annual Report Download - page 20

Table of Contents
ITEM 1A. RISK FACTORS
Risks Relating to Our Business
The market for prepaid debit cards and alternative financial services is highly competitive, and competition is increasing as more
companies, many that are larger and have greater resources than we do, endeavor to address the needs of underbanked consumers.
The market for prepaid debit cards and related alternative financial services is highly competitive. We directly compete with a number of
companies that market and serve as program managers for open-loop prepaid debit cards through retail and online distribution, such as Green
Dot Corporation, AccountNow, Inc. and Blackhawk Network Inc. Open-loop prepaid debit cards are those that can be used for transactions at
any merchant participating in the relevant card association, such as MasterCard or Visa, or network organization, such as PULSE, as opposed
to a single merchant. Many of the arrangements that our competitors have with large distributors are long-term and exclusive, which would
prevent these distributors from offering our GPR cards during the terms of the arrangements. Many transaction processors, such as First Data
Corporation, Total System Services, Inc., and Galileo Processing, Inc., have prepaid platform capability and increasingly compete directly with
us for prepaid program management and processing opportunities with large distributors. We also compete with traditional providers of
financial services, such as banks that offer demand deposit accounts and card issuers. Similarly, we anticipate increased competition from large
retailers seeking to integrate more profitable financial services into their product offerings. For example, Wal-Mart currently offers a prepaid
debit card and related services through its stores with our direct competitors Green Dot and Total System Services as the program manager and
the processor, respectively. We also anticipate increased competition from alternative financial services providers, who are often well-
positioned to service the underbanked and who may wish to develop and manage their own prepaid debit card programs. For example, in the
past year, two of our prior retail distributors Pay-O-Matic and Checksmart introduced their own GPR cards through their stores. While the
increased desire of banks, retailers and alternative financial services providers to develop prepaid debit card programs frequently creates new
business opportunities for us, it could also have an adverse effect on our business, including through increased price competition and loss of
distributor relationships.
Our ability to grow our business is dependent on our ability to compete effectively against other providers of GPR cards and alternative
financial services. Many existing and potential competitors have longer operating histories and greater name recognition than we do. In
addition, many of our existing and potential competitors are substantially larger than we are and may already have or could develop
substantially greater financial and other resources than we have. We may also face price competition that results in decreases in the purchase
and use of our products and services. To stay competitive, we may have to increase the incentives that we offer to our retail distributors and
decrease the prices of our products and services, which could adversely affect our operating results.
The majority of our revenues result from GPR cards marketed pursuant to agreements we have entered into with a small number of retail
distributors. If we are unable to maintain relationships with our retail distributors on terms that are favorable to us, our business, financial
condition and operating results may be materially adversely affected.
Our business model substantially depends on establishing agreements with our retail distributors, which primarily consist of alternative
financial services providers, as well as grocery and convenience stores and other traditional retailers. While we continually seek to diversify the
sources of our revenues and card distribution, the majority of our revenue streams have historically depended on cards distributed through these
retail distributors. In 2010, GPR cards distributed through our largest retail distributor, ACE, accounted for approximately 37.5% of our
revenues. In June 2010, during the course
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