FCB’s Exit from Issuing Leaves Program Managers Seeking New Partners (February 2013)
By Adam Perrotta, Assistant Editor
Dozens of prepaid program managers are scrambling to find a new bank issuer with First California Bank (FCB) exiting the issuing business ahead of its acquisition by PacWest Bancorp.
In November, PacWest agreed to pay $231 million for FCB’s parent company, Westlake Village, Calif.-based First California Financial Group. Los Angeles-based PacWest, which is not licensed to issue MasterCard– or Visa-branded payment cards, reportedly was uninterested in taking on FCB’s prepaid issuing business. The deal is expected to close by late March.
Last week FCB sent letters to its approximately 40 program managers, representing 120-140 prepaid programs, about its withdrawal from prepaid issuing and offered to support their transition to other issuers. Sources with knowledge of the situation said that one option would have been for FCB to sell its prepaid portfolio to another issuer—and, apparently, several were interested—so the news that program managers would be left to find new issuers on their own came as a surprise to some. FCB did not reply to a request for comment on the situation.
The sudden exit of FCB further diminishes the number of U.S. financial institutions willing to offer prepaid issuing services to third parties, due, in part, to the regulatory and compliance scrutiny on this area. During the past year, several financial services businesses have been hit with significant penalties for failures in their oversight of third parties—not necessarily related to prepaid but close enough to signal that if you’re a prepaid issuer, you have significant responsibility for monitoring the actions of the program managers and other third parties you support.
“The compliance and oversight function requirements are continuing to increase and any bank choosing to be an issuer in this space should understand those obligations, take them very seriously and invest in the infrastructure needed to do it right,” a prepaid issuer recently told Paybefore. “Any program manager looking for a bank partner should perform its due diligence to ensure the issuer is capable of performing at the level expected by its regulator.”
And, the fact is, in this environment, issuers can be picky about the program managers and programs they support. Several program managers told Paybefore that they would seek arrangements with multiple issuer partners for their programs—increasing their overall costs—to avoid having all their eggs in one issuer’s basket.
First California entered the issuing arena two years ago, when it purchased the Electronic Banking Solutions business of Palm Desert National Bank, which was generating $3 million in annual revenue on $55 million in deposits at the time of the January 2011 acquisition. “We believe the prepaid card business provides new revenue streams at attractive margins and complements our growth strategy,” First California president and CEO C.G. Kum said at the time.
In 2012, FCB announced plans to purchase Riverside, Calif.’s Premier Service Bank. That deal, however, was called off by mutual agreement when it failed to close by the end of 2012.