Members of the nonprofit group College Parents of America have been seeking an alternative to the masses of credit card issuers targeting students, so the group is coming out with its own products.
The Washington advocacy has teamed up with Debix Systems in New York to design its own credit and debit cards, which are to be issued by Columbus Bank and Trust of Columbus, Ga., starting this month.
The 200,000-member group, founded four years ago by parents seeking more of a say in their children's finances, developed the cards to help their kids shop online and safely develop a credit record.
Richard M. Flaherty, president of the organization, said the cards are like training wheels. "This is better than a co-sign situation," he said. "Here parents are guarantors, and the student can get a credit history."
Though College Parents of America will be the first nonprofit organization to come out with a student card, new companies are flooding the youth market. The technology producer Solspark (formerly Netgen) unveiled a teen offering this month, and Visa U.S.A. launched a teen-spending product that will be available to all of its member banks.
This is "an important market to tap," said Christine Hahn, president and co-founder of Solspark in New York. "Teens don't want total financial freedom," but "they want a sense of autonomy."
Many card issuers are eyeing this demographic. Youth spending in 1999 surpassed $158 billion, and teens influenced more than $520 billion of purchases, according to InterRep Research, which pegs U.S. teens' weekly allowance at $1 billion.
Solspark and the parents group said their products offer more parental controls than other new products for this audience, and a healthy dose of instruction to go with it. Many youth cards require a checking account, but Solspark and the parents group's debit cards do not.
The money for both debit cards can originate from a checking account, money order, or credit card, and can be set up like a recurring allowance. Funds can also come from multiple sources.
One of the main differences between Solspark and the CPA card programs is the ability to build a credit history. With the parents group's credit cards, students can actually build credit. Solspark only offers a debit product.
Solspark decided not to offer credit because most parents hate the idea of their children racking up huge debts, Ms. Hahn said. With the debit card, teens up to 17 years old can establish a relationship with banks, and when they turn 18 they can get their own cards.
"We've positioned this as a rite of passage, like a learner's permit toward a driver's license," Ms. Hahn said.
Solspark said its turnkey payment mechanism offers parents a large degree of control. The product is designed for monitoring over the Internet and enables parents to set limits in certain merchandise categories.
"It functions like a credit card," Ms. Hahn said. "When it gets swiped, you get approved or declined, [depending on] whether you are in your spending limits." Parents could set limits such as $200 for clothes and $100 for music, for example.
Solspark said it would create a customized Web interface for every participating bank. Parents will be able to place spending limits over the Internet, and children will be able to post notes asking for more money.
"There is constant negativity and conflict around money in a household," Ms. Hahn said. "This is just a tool to mitigate friction."
Les Reidl, senior vice president at Speer & Associates in Atlanta, said the teen age bracket is perfect for debit cards in particular. "That's where you will see debit cards take off for Internet payments."
Adults are content with credit cards for Internet transactions, he said, but teens for the most part cannot own credit cards.
Solspark's product is targeted at banks, and the parents group designed its cards with the end-user in mind, Mr. Reidl said.
The College Parents of America program, which has been under development for more than two years, offers Visa and MasterCard products. The cards will be offered only to the group's members and will have no annual fee, unless usage drops below six times a year, said Robert Hartman, director of marketing at Debix Systems.
The cards will come with a introductory annual rate of 5.9%, which will jump after six months to 7.8% plus prime (which currently would be 17.4%). Itemized statements will be mailed to the students directly, but parents will be able to access the debit card account information at College Parents of America's Web site and the credit card information by calling a toll-free number.
Mr. Flaherty said members asked the parents organization to develop a student debit and credit card program. They wanted "our seal of approval on a good, valued card," he said.
As for financial guidance, the parents group and Debix said they will issue a handbook for students called "Money Talks," while Solspark customers will have access to discounts, savings programs, and advice on how to manage money online.
