NetSpend 2010 Annual Report Download - page 30

Table of Contents
We have entered into outsourcing and other agreements related to certain business operations, and any difficulties experienced in these
arrangements could result in additional expense, loss of cardholders and revenue or an interruption of our services.
We have entered into outsourcing agreements with third parties to provide certain customer service and related support functions to our
cardholder, including the outsourcing of customer service through facilities located in Mexico and the Philippines. As a result, we must rely on
third parties over which we have limited control to perform certain of our operations and, in certain circumstances, interface with our
cardholders. In addition, it may be difficult to continue to outsource customer support services to facilities outside of the U.S. If these third
parties are unable to perform to our requirements, we may be forced to pursue alternative strategies to provide these services, which could
result in delays, interruptions, additional expenses and loss of cardholders.
We have also entered into contracts with third-party vendors to provide certain services, technology and software. In the event that these
service providers fail to maintain adequate levels of support, do not provide high quality service, discontinue their lines of business, terminate
our contractual arrangements or cease or reduce operations, we may be required to pursue new third-party relationships, which could disrupt
our operations, increase the costs of these services, technology or software and divert management's time and resources. If we are unable to
complete a transition to a new provider on a timely basis, or at all, we could be forced to temporarily or permanently discontinue certain
services, which could disrupt services to our customers and adversely affect our business, financial condition and results of operations.
We are subject to risks and write-offs resulting from fraudulent activities and losses from overdrawn cardholder accounts, which could
adversely impact our financial performance and results of operations.
Our prepaid cards expose us to counterfeit threats through the misuse of such cards, collusion, fraud, identity theft and systemic attacks on
our systems. An additional threat is the theft of cards in a retail environment. Although these stolen cards are not active and thus not able to be
used, theft or attempted misuse of our prepaid debit cards could nonetheless cause reputational harm. While a large portion of fraudulent
activity is addressed through the chargeback systems and procedures maintained by the card associations and network organizations, we are
often responsible for losses that result from transactions in small amounts that are fraudulently forced by merchants through the settlement
systems maintained by the card associations and network organizations without prior authorization for which it is not economically feasible to
pursue chargebacks. The systems and procedures we have established to detect and reduce the impact of fraud may not be entirely effective
and, as a result, incidents of fraud could increase in the future. Failure to effectively manage risk and prevent fraud would increase our write-
off
liability and could harm our reputation, which could have an adverse effect on our operating results and financial condition.
In addition, from time to time, certain of our cardholders may attempt to utilize their prepaid debit cards for purchase transactions which
exceed the amount of funds available in their card accounts. While we generally decline authorization attempts for such transactions in
accordance with the policies and procedures established by our issuing banks, card accounts may become overdrawn through the application of
card association and network organization rules and regulations, the timing of the settlement of card transactions and the assessment of
subscription, maintenance or other fees charged by our issuing banks. We also provide certain cardholders with a "cushion" which allows them
to overdraw their card accounts. In any such event, we may be liable to our issuing banks for the resulting overdrawn account balance.
Finally, eligible cardholders may enroll in overdraft programs offered by certain of our issuing banks, pursuant to which the issuing bank,
in its sole discretion, funds certain prepaid debit card transactions that exceed the available balance in the relevant card account. While this is a
discretionary
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