Miami, FL - As a nation, we are currently in the midst of remarkable changes in the utilization of payment instruments. Electronic payment in the form of prepaid debit and stored value cards is currently the fastest growing niche in the financial sector. In fact, the number of prepaid card payments increased by 22 percent per year from 2006 through 2009. According to the Mercator Advisory Group, the amount of money placed on prepaid cards will more than double in the next three years, going from a current rate of $330 billion to over $670 billion in 2016. Analysts at First Annapolis Consulting predict that the market for prepaid cards that are not consumer reloadable (also known as stored value cards) will grow from $95 billion in 2011 to $257 billion in 2016. Stored value cards are cards issued by a paying organization in lieu of checks. When the recipient receives a stored value card, the money is preloaded onto the card.Stored value plastic can include but is not limited to: rebates, corporate incentives, payroll, and government issued payment cards. In fact, increased government and corporate activity is currently driving the growth of the segment by ever-increasing loads, thus leveraging stored value cards into a viable financial alternatives for under-banked individuals.
The good news for investors is that venture opportunities are burgeoning in this niche. Larger companies such as Wal-Mart (NYSE: WMT) with its Wal-Mart Visa Gift Card and American Express (NYSE: AXP) with its Bluebird card, offer less volatile investment risks. Smaller companies such as Green Dot Corporation (NYSE: GDOT), Netspend Holdings Inc. (NASDAQ: NTSP) and 3Pea International Inc. (OTCBB: TPNL) present optimal entry points for investors who are attracted to more risky plays which in turn can offer higher rewards.
Green Dot is the chief player in the industry with over four million cards and $17 billion in gross volume. The company’s prepaid debit cards and prepaid reload services are available at more than 60,000 locations across the United States. Green Dot gained leverage in the industry with its acquisition of a small bank for $15.7 million in 2011. Undoubtedly the company now has the flexibility to provide more products and services than it would otherwise as just a technology and distribution company. The purchase minimizes the risks of relying on unaffiliated bank issuing partners and now makes GDOT almost completely vertically integrated.
Green Dot went public in July 2010 at $36.00 per share and did another offering in December of 2010 at $61.00 per share. It is currently trading at $15.58 and has a market cap of $560 million. The stock’s retreat from its high was due to several factors, including; slow growth, a high valuation, and the inevitable competition that has appeared in the industry. The company’s balance sheet is strong with over $190 million in available cash and no debt. GDOT focuses on mergers and acquisitions to acquire products or services in secondary markets in order to diversify its revenue streams. In terms of valuation, investors should look at Green Dot’s nearest competitor, Netspend. NTSP was only just acquired by TSYS (NYSE: TSS) for $1.4 billion, which put the takeout value at
11.5 times EBITDA. GDOT has about 50 percent more revenues than NTSP and twice the active card base.
3Pea International Inc. is a pure play in the rapidly growing stored value card segment. The company initially made its mark providing payment solutions in the pharmaceutical industry. 3Pea has managed card programs for the likes of Pfizer Inc. (NYSE: PFE), Johnson & Johnson (NYSE: JNJ), and Novo Nordisk (NYSE: NVO); along with many other heavy hitters in the pharmaceutical industry. TPNL has since branched into corporate incentives and has added prepaid reloadable debit cards by partnering with one of the country’s largest blood/plasma donation centers. The centers are now paying their donors with a customized prepaid debit card provided by 3Pea. The company affords a unique card processing platform to its clients made up of proprietary systems and original software applications. Through this platform, 3Pea makes available a host of services including; card creation and fulfillment, transaction processing, value loading, cardholder enrollment, integrated voice response, cardholder account management, reporting, and customer service. Acting as both processor and program manager, the company maintains direct control over end-to-end services, thus reducing the need for third party involvement. 3Pea boasts an exceedingly strong management team that is actively pursuing growth in multiple, diverse segments of the industry including; payroll cards, general purpose reloadable cards, expense reimbursement cards, and travel cards. This proactive approach will allow for diversified revenue streams and further enhance 3Pea’s expansion within the stored value card vertical.
3Pea announced record financial results for 2012 earlier this month and the numbers are bound to entice investors. Revenues increased a robust 103 percent to a record $6.7 million. This figure is double the $3.3 million revenues report for the full year 2011. TPNL grew operating income to record levels of $574,851, up from the prior year’s $278,886. This translates into a tidy 106 percent increase. Net income for 2012 increased an astounding 743 percent from $215,186 in 2011 to $1.8 million in fiscal year 2012. The increase is attributed to the launch of new card programs and a gain from conversion of debt to equity; where debt holders took shares priced at $0.50, in exchange for their debt. EPS come in at $.05 per share and the company has a P/E of 5.TPNL anticipates continued strong growth as it leverages additional debit card programs and actively diversifies its service offerings and products lines. With an optimal entry point, phenomenal growth, sound business strategy, and a solid, proactive management team in place, the odds are in your favor on this play.
On another note, investors should be aware that investing in small-cap OTC companies, such as 3Pea, can be risky. Shares are thinly traded boosting the volatility of the stock. Also lack of liquidity may make it difficult to buy or sell the play on demand. The bottom line is that investors should be wary of OTC listed stocks because regulatory standards are not as stringent and these trades can be easily manipulated. That is not to say that you should not invest in reputable OTC companies. A wise investor always does their homework, no matter where they put their money, and 3Pea appears to be a solid play.
The bottom line is that the cards are user friendly. They provide the consumer with the ability to transact commerce online without a credit card or a bank account. Additionally, businesses and governments acknowledge the value of the cards and are increasingly using them as a more cost effective solution when compared to using checks for distributing payroll, benefits, and corporate rewards. Even the IRS is issuing refunds to under-banked individuals using prepaid plastic. It is a certainty that use of stored value cards will continue to grow at a rapid rate, effectively shifting the scenery in the sector on an almost daily basis. Considering the rapid growth of the industry now is certainly a good time to consider investing in this payments
technology.
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