With school bells ringing once again, First of America Bank Corp. is predicting that its smart card programs on Michigan college campuses are a few semesters away from turning profits.

The Kalamazoo-based banking company didn't get into the business just to be on the leading edge of a new payment technology. It is also staking out the coveted student banking market.

"If we do our job right, we'll have that customer for life," said Cynthia S. Kole, vice president of the campus card and student loan departments.

There is nothing unusual about cards - of the old, magnetic stripe variety - for students and other members of college and university communities. Even smart cards (standard plastics enhanced with computer chips) are beginning to spread, thanks to companies like First of America and Cybermark, which is partially owned by Huntington Bancshares of Columbus, Ohio.

First of America was the first U.S. bank to take the chip-card concept to colleges. In 1995, First of America signed the University of Michigan in Ann Arbor and Western Michigan University in Kalamazoo.

Building on that experience, the bank has extended the program to the Central Michigan, Northern Michigan, Michigan Technological, and Lawrence Technological campuses.

Outside its home state, the $22 billion-asset bank also runs a magnetic stripe card program at three University of Illinois campuses. With only about 20 U.S. campuses having made the leap to chip cards, First of America has a strong early market position.

Smart cards are well suited to the "one card" philosophy of many schools, in that identification, student registration, financial aid accounts, stored-value payments, automated teller machine access, long- distance calling, library cards, and other functions can coexist. And universities are the quintessential "closed systems" in which many card industry observers expect smart cards to flourish.

As most U.S. banks are just warming to chip cards and skeptical of their profitability, First of America has already issued 130,000 and expects to be in the black next year.

"It is an excellent long-term strategy to be focusing on this demographic and welding them in with more and more product," said John H. Stearns, chief executive officer of Ubiq Inc., a Minneapolis-based software developer. "It's good marketing."

"The schools are looking for a one-card solution," said Ms. Kole. "Many times what the colleges and universities have for their students is a separate library card, a separate ID card, a separate access card, a separate copy (machine) card."

Not anymore. The Michigan applications include student registration, tuition accounting, ATM access, vending and laundry machines, and building access. Users can load up to $50 on the card and can make purchases without using a personal identification number.

Aside from the convenience, the schools were enticed by the security inherent in the chip, especially for transactions with outside merchants. Involving those merchants in the payment system also strengthens ties with the community, said Theodore J. Petropoulos, director of the Bernhard and Fetzer Centers at Western Michigan.

"We could have created that service ourselves," he said of developing the payment system. But he added, "We're a university, not a bank. It made much more sense for First of America to do that."

Spreading the risk, First of America shares the up-front costs with the schools. The schools pay for the cards, which are manufactured by Schlumberger Danyl of Moorestown, N.J.

The cards cost about $4 each, versus $1 for a magnetic stripe card, according to Michael H. Smith, general manager of operations, Schlumberger.

The bank provides the merchant terminals, network hardware, and software, and covers initial marketing costs.

Though First of America would not disclose its smart card investment, Mr. Smith said equipment costs alone can run well into the hundreds of thousands of dollars.

The revenue, which is sometimes shared with a school, comes from transaction settlements, interchange, and other fee income.

Outside merchant participation is key to the smart card's long-term success, said Peter J. Quadagno, president of Quadagno and Associates, a card technology consulting firm in West Chester, Pa.

"To make it viable down the road," he said, "you need the merchants to pay" transaction fees.

With its eye on basic bank marketing, First of America also looks to benefit from checking and savings accounts and other products it can offer cardholders.

It all fits in with a revenue-generating and cost-cutting mandate that helped produce an 18% improvement in second-quarter earnings, to $73.2 million. Over the last two years, First of America sold or closed 36 small- town branches in Michigan and Illinois. In June, it announced it would sell a $1.1 billion-asset Florida subsidiary to Barnett Banks Inc. for $160 million. It has also cut 1,000 jobs, or 7% of its total.

To build for the future, First of America has invested $75 million to $100 million in new technology, said Richard Chormann, chairman, president, and chief executive officer.

"We feel that the smart card is really going to be the transaction method of the future," said Ms. Kole, 40, who has worked her way up the ranks since starting as a teller at the Western Michigan campus branch in 1977.

She has led the bank's campus card division since 1995 and attributes its success to "an excellent technical group that stays abreast of all of the changes and enhancements to the smart card."

Ms. Kole also credited a "well-versed marketing group that has a lot of university and college" experience implementing campus card programs.

She said the bank is developing a campus card program for smaller schools and community colleges. It plans to pursue schools both in its prime region - mainly Michigan, Illinois, and Indiana - and outside.

The bank is also working on a corporate campus version of the program.

Ms. Kole is looking to add more clients as early as January 1998. The bank's experience gives it a leg up on competitors, she said, "and allows us to go in and feel comfortable about implementing the product (and) selling it to others."

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