Underscoring a trend towards consolidation in the prepaid issuer space, payroll card program manager TFG Card Solutions says that Bancorp Bank will become its issuer. The decision affects about two thousand business accounts
that collectively serve approximately seventy thousand consumers.
Increasingly, it seems as if issuers have more and more leverage with program managers. At the moment, program managers seeking an iso-issuer face a set of finite choices. The big guys are Bancorp and MetaBank. Certainly there are other banks out there, but those two dominate the spectrum. Program managers, rather than consumers, yield to the force of their clout.
Moreover, most of the consolidation seems to consist of new business going to Bancorp. NetSpend's diversification strategy essentially described a process of moving accounts from MetaBank and Inter National Bank over to Bancorp. It is the same story with new programs: Bancorp landed Paypal and Suze Orman. In 2012, Bancorp added Rush. Before it went out of business, BankFreedom left MetaBank and signed up with Bancorp.
Someone should run a Herfindhal-Hirschman Index test on the issuance of prepaid cards. In particular, a good analysis would focus solely on the portion of consumers using direct deposit. To truly capture the lack of choice, the analysis would have to exclude the share of the market served by the vertically-integrated cards (Green Dot, Liquid, Emerald...) where PM and issuer fall under one roof. In the space where PMs contract with an issuer, the customer is not the consumer. The customer is the PM.
I imagine that the HHI would be at least 1,600 and perhaps as high as 2,000. Under guidelines established by the Department of Justice, the former would describe a "moderately concentrated" market and the latter would be "highly concentrated." Unfortunately, any kind of action on the part of the DOJ would probably be limited to a moment where one issuer buys the other.
TFG had been working with Pacific Western Bank.
"We looked at a couple of smaller ones," said TFG's Executive Vice President Burke Rice. "There are a couple of smaller banks looking to get into the arena. But given the time frame we had, it was just better to go with an established player. We had been with PWB but they are exiting the market. We just felt that we liked Bancorp's experience."
Pacific Western Bank had been the issuer of other cards. Kaiku (Kaiku VISA and Kaiku Angry Birds Visa) has turned to Bancorp.
Consumers not Impacted by Issuer Consolidation
For the moment, the concentration does not seem to be harming consumers.
The new Bancorp-issued cards from TFG will actually cost less to use than did the old ones from PWB. The cost to speak to a "real" person is going to fall 95 cents. Overdraft remains a thing of the past. Notably, until about one year ago, TFG cards did come with a $19.95 opt-in overdraft. A link to their former card agreement (soon to be updated) is here. The old TFG card had a fifty cent decline fee. The new card will not have a decline fee. It is the same story with the Kaiku Card (s); both adhere to the new lower-fee environment that seems to be establishing itself everywhere.
If issuer leverage over pricing does become the new standard, then it leaves more room for traditional regulators to impose their expectations upon prepaid.