Citigroup Inc. on Wednesday announced it has struck a definitive agreement to sell its institutional Prepaid Card Services unit to Munich, Germany-based Wirecard AG. The deal is significant in that it will give Europe’s second-largest payment processor a toehold in the U.S., and it marks the retreat by another big bank from the increasingly regulated prepaid card industry.
Based near Philadelphia in Conshohocken, Pa., Citi Prepaid Card Services has served 2,500 corporate clients with cards mostly for incentive, disbursement, and compensation functions.
The parties did not disclose the purchase price. Citi said it expects the deal to close in the fourth quarter, upon which the unit’s approximately 120 employees will become Wirecard employees.
Wirecard, which serves 22,000 physical and e-commerce merchants globally, is Europe’s No. 2 payment processor after United Kingdom-based Worldpay and, according to Reuters, has been rumored for months to be interested in U.S. expansion.
“This acquisition extends Wirecard AG’s global presence into the North American market,” chief executive Markus Braun said in a news release. “On an operating level we look forward to sustainably enriching their existing product portfolio via our innovative issuing solutions.”
New York City-based Citigroup did not specifically say why it is selling the unit. A spokesperson tells Digital Transactions News by email that the bank last year transferred the prepaid card operation into a Citi unit that holds businesses and assets for eventual divestiture.
Citigroup rival JPMorgan Chase & Co. has scaled back its presence in prepaid cwards to just one major product, the Liquid card, notes Ben Jackson, director of Maynard, Mass.-based Mercator Advisory Group Inc.’s prepaid advisory service.
“It seems the large banks have moved away from the prepaid business,” Jackson tells Digital Transactions News by email. “I am sure these companies are reacting to the changing prepaid landscape, the changing regulatory landscape, and the changing financial-services landscape. For large banks, especially if they are facing the prospect of being broken up by regulators ending too-big-to-fail [policies], then they may be trying to take a look at what their preferred business lines are and stick with those.”
The federal Consumer Financial Protection Bureau is expected to issue major prepaid card regulations soon, so Wirecard could be entering the U.S. market at an uncertain time, Jackson adds. “It makes you wonder what Wirecard’s expectations are about the final shape of the regulations and what plans they have. Maybe they think they can overcome the regulatory hurdles because of their experiences in Europe.”
As Wirecard is not a bank, it’s not clear yet what the issuing entity will be once Wirecard takes over the business.