Originally Posted by
Yossarian147
What guarantees the value on the card though? OVs and gift cards are not FDIC insured. What happens if Bancorp goes under?
It does not really matter if the cards are directly FDIC insured.
The issuer of such a card is under incredible regulatory activity, like daily physical monitoring. They have to maintain a ratio of cash to liabilities ( such as the cards) that allows them to honor all card charges with a lot left over.
If they get even close to violating those ratios, one night (literally during the night) the regulators force a transfer of the assets and liabilities to a competitor who is willing to do the purchase. The competitor is willing to do the purchase because the publicity surrounding a "default" on prepaid cards would destroy the entire industry.
I have been trying to decide whether to buy some Bancorp stock. As always, I think the market overreacted to the press release, although it already got a little jump since the bad news. My hesitation is that it is likely that there will be a large decrease in the purchases of Vanillas as a result of this WalMart liquidation issue. MSers are their lowest profit margin clients but likely effectively make up a large portion of their revenue from these cards.
The common person who these cards were designed for just does not buy several $500 cards a day. I doubt that the market will understand that any drop in the purchase of Bancorp gift cards came from MSers with no access to nearby grocery store shifting their purchases to US Bank and Metabank gift cards.