November 27, 2012
Already a major player in the prepaid card industry, U.S. Bancorp on Tuesday announced plans to bolster that part of its payment card business by acquiring FSV Payment Services, a Jacksonville, Fla.-based prepaid card program manager and processor.
Minneapolis-based U.S. Bank issues prepaid cards for more than 4 million account holders in a number of industry segments, Kevin Morrison, senior vice president of U.S. Bank Retail Payment Solutions, tells Digital Transactions News. They include child support, welfare benefits, and other public-sector programs in 17 states. The bank also issues corporate prepaid cards, payroll and incentive cards, and general-purpose reloadable prepaid cards.
Jacksonville, Fla.-based FSV, meanwhile, manages and processes somewhat less than 3 million accounts in a number of segments. Founded in 1999, the company is a major payroll card provider whose clients include McDonald’s, Costco, and Darden restaurants, says Rick Savard, FSV’s chief executive. “Together we certainly bring critical mass,” says Savard, who was the chief executive of NetSpend Holdings Inc., a big prepaid card program manager, from 2004 to 2008.
But in addition to FSV’s cards and major-league corporate clients, the biggest prize U.S. Bank may be getting out of the pending deal is FSV’s processing platform. U.S. Bank is one of those rare financial institutions that likes to do its payment card processing in-house, but it uses Fidelity National Information Services Inc. (FIS) to process its prepaid card file. With FSV, U.S. Bank will become a soup-to-nuts prepaid card provider.
“Along with volume, which U.S. Bank no doubt will get out of this, the other thing driving prepaid is vertical integration,” says Ben Jackson, a senior analyst at Maynard, Mass.-based Mercator Advisory Group Inc. who researches the prepaid card industry. “This gives the bank a prepaid processor. It can now issue, process, and program-manage, and that is a pretty powerful thing.”
In some respects, U.S. Bank is following the same path as Green Dot Corp., a leading prepaid card program manager that bought Utah-based Bonneville Bank about a year ago to issue cards directly.
U.S. Bank was hunting for an in-house prepaid card platform, though it didn’t set its sights on FSV until an FSV board member introduced executives of the two companies, according to Savard. Morrison says he was impressed with FSV’s technology, operations and customer service. Its platform, he notes, was built specifically for prepaid cards and wasn’t a modified credit or debit card system common throughout much of the industry. “We were looking for a Chevy and we landed a Corvette,” says Morrison.
Savard, meanwhile, says, “we were not shopping the company.” But after the introductions, he saw that U.S. Bank could be a strong financial-institution partner with lengthy experience in prepaid card issuing and operations in a number of industry segments that could benefit FSV’s business. “It really matched up perfectly with how we built the company,” he says. “It was just a really nice fit between the two entities.”
FSV uses 12 issuers, including Comerica Bank, Darden’s own credit union, and MetaBank and The Bancorp Bank, two prominent prepaid card industry players. U.S. Bank won’t necessarily become the issuer for all of FSV’s programs; issuing decisions will be made on a case-by-case basis as contracts come up for renewal, according to Morrison.
U.S. Bank plans to retain FSV’s entire staff of about 210 employees and its Jacksonville facilities. FSV will be placed under the wing of U.S. Bank’s Elan Financial Services unit, although a decision about branding won’t be made until some time in the future, according to Morrison.
The companies didn’t reveal terms of the deal, which requires regulatory approvals and is expected to close in December.
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