With Springbok, Fifth Third Gets into Open-Loop Prepaid

Merchant acquirer Fifth Third Processing Solutions LLC is also a sizable closed-loop gift card processor, and now it’s about to get into the processing of open-loop prepaid cards through its acquisition of bankrupt Springbok Services Inc.’s technology platform. The acquisition follows closely on the heels of Fifth Third Processing’s announcement that it had a deal to buy a big merchant processor, National Processing Inc. (Digital Transactions News, Sept. 15).

The Springbok sale, approved last week by the U.S. Bankruptcy Court in Denver, cost Fifth Third Processing only $1.5 million but positions the company to compete with prepaid heavyweights Green Dot Corp., NetSpend Inc., and others. Founded in 1998 as The Best Present Co. Inc., Springbok wasn’t nearly as big as some of its rivals, but it developed a “cutting-edge” reloadable prepaid card processing platform, according to Fifth Third.

Market researcher Mercator Advisory Group Inc. says the open-loop, or general-purpose, prepaid card market is growing by nearly 37% annually and could hit $421 billion in load volume by 2013 compared with $125 billion last year. “Our presence right now, today, in the [open-loop] prepaid market is really nonexistent,” a spokesperson for Cincinnati-based Fifth Third Processing tells Digital Transactions News. The company had looked at creating its own open-loop platform or seeking a partnership with a provider. “So when this opportunity came up we decided to look down that avenue,” she says.

Fifth Third Processing plans to use the Springbok platform to offer processing for Visa- and MasterCard-branded gift cards, general-purpose reloadable prepaid cards, payroll cards, and loyalty programs. A Top 5 merchant acquirer, Fifth Third Processing also serves more than 3,000 card-issuing financial institutions with ATM driving, credit and debit card processing, fraud control, and related services. The company processes closed-loop gift cards for a number of its merchant clients, handling 57 million gift card transactions annually, according to the spokesperson.

“What [Springbok] allows for us is to actually complement both of our lines of business,” the spokesperson says. “Using that same railway, we can now do reloadable prepaid cards.”

Citing cash-flow problems, Englewood, Colo.-based Springbok filed for Chapter 11 bankruptcy protection on June 18. Its petition listed assets of $15.1 million and liabilities of $35.9 million. Springbok focused on managing Visa and MasterCard prepaid card programs in the corporate-incentive, payroll, and student-tuition niches as well as loyalty and rebate programs, according to a June 25 motion filed by Springbok’s attorneys. The company had 2,100 customers with about 1.9 million cards issued and was generating revenues of $800,000 per month, the filing says. Springbok’s card-issuing partners were KeyBank, The Bancorp Bank, and MetaBank.

Springbok expanded over the years with equity from its founders, angel investors, funds from operations, and a $15 million investment in 2007 from Goldman Sachs & Co., growing annualized revenues from $3 million in 2006 to $13.2 million last year. But high overhead caused expenses to continually exceed revenues, according to the June 25 filing. The company’s finances took a hit in 2008 and 2009 with the economic downturn and turned critical in January 2010 when a client projected to account for 35% of revenues, Group O Inc., terminated its Springbok prepaid card programs. Springbok brought in outside professionals to help it raise capital or find a buyer, but those efforts failed.

The June filing listed Cleveland-based KeyBank as Springbok’s largest unsecured creditor, owed $15 million. Other major creditors included Group O, owed $3.51 million, and MetaBank, owed $3.48 million.