NetSpend 2010 Annual Report Download - page 82

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Table of Contents
NetSpend Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2008, 2009 and 2010
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
subscription fee, as applicable. Cardholders are also charged fees for ATM withdrawals and other transactions conducted at
ATMs.
• Customer Service and Maintenance—Cardholders are typically charged fees for balance inquiries made through the Company's
customer service. Cardholders are also charged a monthly maintenance fee after a specified period of inactivity.
• Additional Products and Services—Cardholders are charged fees associated with additional products and services offered in
connection with certain GPR cards, including overdraft protection through the Company's issuing banks, a variety of bill
payment options, custom card designs, and card-to-card transfers of funds through the Company's customer service.
• Other—Cardholders are charged fees in connection with the activation of the Company's GPR cards and the gift cards at
retailers.
Revenue resulting from the service fees charged to cardholders described above is recognized when the fees are charged because the
earnings process is substantially complete, except for revenue resulting from the initial activation of the Company's cards and annual
subscription fees. Revenue resulting from the initial activation of cards is recognized ratably, net of commissions paid to distributors, over the
average account life, which is approximately one year for GPR cards and three months for gift cards. Revenue resulting from annual
subscription fees is recognized ratably over the annual period to which the fees relate.
Revenues also include fees charged to retail distributors in connection with the reload of the Company's GPR cards. Revenue resulting
from the reload of GPR cards is recognized when the fee is charged.
Revenues also include fees charged in connection with program management and processing services the Company provides for private-
label programs, as well as fees charged to one of the Company's issuing banks based on interest earned on cardholder funds. Under the
Company's current arrangement with such issuing bank, the Company would only be entitled to receive interest on cardholder funds if market
interest rates rose significantly above certain specified levels. Revenue resulting from these fees is recognized when the Company has fulfilled
its obligations under the underlying service agreements.
The Company earns interchange revenues from a portion of the interchange fees remitted by merchants when cardholders make purchase
transactions using the Company's prepaid debit cards. Interchange fees are fixed by the card associations and network organizations.
Interchange revenues are recognized net of sponsorship, licensing and processing fees charged by the card associations and network
organizations for services they provide in processing purchase transactions routed through their networks. Interchange revenue is recognized
during the period that the purchase transactions occur. Also included in interchange revenue are fees earned from branding agreements with
cardholder associations and network organizations.
DIRECT OPERATING COSTS —Direct operating costs consist of internal and external customer service costs, commissions paid to
third-party distributors based on transaction volumes, ATM processing fees, card supply costs, fraud and other losses related to the Company's
card programs, customer verification costs and fees paid to the card issuing banks.
76