Capital One to Buy NetSpend, Seller of Prepaid Debit Cards

Capital One, the McLean financial services company, announced yesterday that it will purchase NetSpend Holdings, a retail seller of prepaid debit cards, for $700 million.

The acquisition would give Capital One, best known for its credit card offerings, a bigger presence in the growing market for prepaid debit cards and extend its reach to the estimated 70 million U.S. citizens who don't have bank accounts, the company said.

"It's adjacent to our core business," said Tatiana Stead, a spokeswoman for Capital One. "We now have an opportunity to provide an option for everybody."

Prepaid debit cards can be used like credit or debit cards but do not draw from a credit line or bank account. Consumers can buy and refill cards at designated locations including Safeway supermarkets and Ace Cash Express stores. The cards let customers without traditional bank accounts or credit cards make purchases online.

The prepaid debit market grew to $104 billion in 2006 from $64 billion in 2004, according to Aite Group, an industry research firm.

NetSpend, which is based in Austin, has more than 1.5 million customers who make more than $3 billion in annual transactions.

Its cards can be purchased at more than 15,000 locations and refilled at more than 50,000 locations nationwide, the company said.

Capital One ventured into the prepaid debit market in February, when it launched a card with NetSpend. The companies said yesterday that they expect the transaction to close in the fourth quarter, pending regulatory and shareholder approval.

NetSpend, which has 300 employees, will become a Capital One subsidiary once the deal is completed.

"We're confident that the combined capabilities of both companies position us to deliver strong profit growth in the future," Scott Grimes, a Capital One executive, said in a statement.

Capital One said it hopes that prepaid debit cards will steer individuals without traditional credit and banking services toward its financial services.

"The opportunity is that as we get to know the customers better, they can grow with us" toward mainstream financial services, Stead said.

Analysts said the deal could revitalize Capital One's growth figures and share price, which has stagnated since it bought Hibernia National Bank and North Fork Bank in the past two years. The company announced in June that it would cut 2,000 jobs, or 6 percent of its workforce, to save $700 million.

"The Capital One culture has always been a growth company . . . [they're] trying to get back their mojo," said Robert Napoli, managing director of Piper Jaffray. "This is the type of business that could grow over 30 percent a year for a long time if they execute it well."