NetSpend 2011 Annual Report Download - page 20

Table of Contents
The success of our business depends substantially on our ability to attract and retain retailers with a large number of locations that are
convenient for our cardholders to purchase and reload our GPR cards. Some of our retail distributors may endeavor to internally develop their
own prepaid debit card programs or enter into exclusive relationships with our competitors to distribute their products. The loss of, or a
substantial decrease in revenues from, one or more of our top retail distributors, particularly ACE, could have a material adverse effect on our
business and operating results. Most of our retail distribution agreements have terms ranging from three to five years and are typically
renewable automatically for subsequent terms of at least one year unless we or the distributor affirmatively elect to discontinue the agreement
within the required notice period. If we want to continue a contractual relationship with a retail distributor after the expiration of the agreement,
we are typically required to renegotiate the terms of the agreement upon its expiration and in some circumstances we may be forced to modify
the terms of the agreement before it expires. Our negotiations to renew some distribution agreements have resulted in, and in the future may
result in, financial and other terms that are less favorable to us than the terms of the prior agreements, such as improved royalty rates and terms
that permit the distributors to market prepaid debit cards that compete with our GPR cards. Further, we may not succeed in renewing these
agreements when they expire, which would result in a complete loss of new revenue from these distributors. If we are required to pay higher
revenue-sharing amounts or agree to other less favorable terms to retain our retail distributors, or if we are not able to renew our relationships
with our retail distributors upon the expiration of our agreements, our business, financial condition and operating results would be harmed.
We depend on our distributors' sale and promotion of our products and services, but their interests and operational decisions might not
always align with our interests.
A significant portion of our operating revenues are derived from our products and services sold at the stores of our retail distributors.
Because we often compete with many other providers of consumer and financial products for placement and promotion of products in these
stores, our success depends on the willingness of our retail distributors to promote our products and services successfully. In general, these
third parties are able to exercise significant discretion over the placement and promotion of our products in their stores and they can chose to
give greater prominence to the products and services of other prepaid debit card providers. In many instances, our retail distributors have
greater incentives to promote other products or services to consumers. If our retailers do not actively and effectively promote the sale of our
cards, our growth will be limited and our operating results will suffer.
We are subject to extensive and complex federal and state regulation and new regulations and/or changes to existing regulations could
adversely affect our business.
As an agent of, and third-party service provider to, our Issuing Banks, we are subject to indirect regulation and direct audit and
examination by the OCC, the FRB, the Georgia Department of Banking and Finance, the Delaware Office of the State Bank Commissioner and
the Federal Deposit Insurance Corporation, or the FDIC. We will become subject to additional regulators as we add new issuing banks. We are
also subject to direct regulation by those states in which we are licensed as a money transmitter.
Because each of our retail distributors offers prepaid cards and reload services either as an agent of our Issuing Banks or, where
applicable, of NetSpend or another licensed money transmitter, we do not believe that the distributors are themselves required to become
licensed as money transmitters in order to engage in such activity. However, there is a risk that a federal or state regulator will take a contrary
position and initiate enforcement or other proceedings against a distributor, us or our Issuing Banks. Such a development could have an adverse
impact on our business, even if the relevant party were to ultimately prevail in such proceedings. It is also possible that the relevant party could
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