NetSpend 2010 Annual Report Download - page 31

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Table of Contents
service offered by the issuing bank to eligible cardholders, we are responsible to our issuing banks for any losses associated with these
overdrawn account balances.
We maintain reserves intended to cover the risk that we may not recover losses resulting from fraudulent activities and from our
cardholders' overdrawn account balances. The provision for these cardholder related losses resulted in $2.4 million, $4.9 million and
$10.3 million of expense during the years ended December 31, 2008, 2009 and 2010, respectively, but our exposure may increase above these
levels for a variety of reasons, including our failure to predict the actual recovery rate, failure to effectively manage risk, and failure to prevent
fraud. Accordingly, our business, results of operations and financial condition could be materially and adversely affected to the extent that we
incur losses resulting from overdrawn cardholder accounts and fraudulent activity which exceed our designated reserves, or we determine that
it is necessary to increase our reserves substantially in order to address any increased recovery risk.
If any of the large retailers in our distribution and reload network fails to remit the cardholders' funds they collect in connection with the
load or reload of cards to our issuing banks, we may reimburse our issuing banks for such funds, which could have a material adverse
effect on our financial position and results of operations.
A significant portion of our business is conducted through retailers that provide load and reload services to our cardholders at their retail
locations. Members of our distribution and reload network collect our cardholders' funds and are contractually required to remit them by
electronic transfer directly to our issuing banks for deposit in the cardholder accounts. Our issuing banks typically receive our cardholders'
funds no earlier than three business days after they are collected by the retailer. If a retailer becomes insolvent, files for bankruptcy, commits
fraud or otherwise fails to remit funds to our issuing banks, we typically reimburse our issuing banks for such funds. Given the unprecedented
volatility in global financial markets and the economic challenges facing the U.S., the approaches we use to assess and monitor the
creditworthiness of our retail distributors may be inadequate, and we may be unable to detect and take steps to mitigate an increased credit risk
in a timely manner. If in the future any of the large retailers in our reload network for any reason fails to remit funds to our issuing banks and
we reimburse our issuing banks for such funds, it could have a material adverse effect on our financial position and results of operations.
The lack of a strong brand name or inability to maintain or strengthen our brand may reduce our ability to retain and attract customers,
which could adversely affect our business, financial condition and operating results.
Many of our cards are principally branded with the trademarks of our distributors. Accordingly, many of our customers do not have a
strong awareness of the NetSpend brand and may not associate our products and services with us. Increasing brand awareness among
distributors and ultimate consumers is an important part of our strategy to grow our business. Developing, promoting and maintaining our
brand and image requires a consistent capital investment and expense, and this investment in our brand and image may not be successful. If we
fail to develop, promote and maintain our brand and image, we may not be able to grow our customer base and our financial and operational
results may suffer.
If we lose key personnel or are unable to attract additional qualified personnel as we grow, our business could be adversely affected.
We depend on the ability and experience of a number of our key personnel who have substantial experience with our operations, the
rapidly changing payment processing industry, other public companies and the selected markets in which we offer our products and services. It
is possible that the loss of the services of one or a combination of our senior executives or key managers would have an
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