Banks Go Back to School With Campus Card Partners

  Not long ago, universities could impress their students by enabling campus identification cards to pay for a handful of on-campus products and services. Students could swipe it in the dining room to pay for lunch, at the college bookstore to buy textbooks and at dorm vending machines for late-night snacks.
  Today, such basic functions seem old school, as an estimated 2,500 out of 4,000 accredited American colleges and universities now support such closed-loop payment systems at on- and off-campus merchants. And a small, but increasing, number of schools are partnering with banks to enable campus card payments all over the world using PIN or signature-debit functions to access demand-deposit accounts.
  Banks provide partnering schools with signing bonuses and ongoing revenue based on checking accounts opened and debit transactions generated via campus cards. In return, the financial institutions gain access to new customers they hope will stick with them long after graduation.
  When students use the debit functions of their campus cards, the same interchange rates apply as to any other debit purchases, or about 1.5% of the sale. Payments drawn from the stored-value campus card systems not tied to banks charge accepting merchants from 4% to 20% of the sale, fees that many merchants are willing to pay to compete for student spending.
  Industry estimates count campus card partnerships between schools and financial institutions at 100 to 125. These partnerships, which offer optional bank account services tied to campus cards, include some small community banks and credit unions, but most involve large, national banks.
  Robert Huber, president of Scottsdale, Ariz.-based campus card consulting firm Robert Huber Associates, is not impressed with that number. "If the first relationships were put together in 1989 and 1990, and we only have 125 schools involved, to me that is not a successful application," he says.
  Huber says he has seen financial-institution interest in campus card partnerships wax and wane at least three times, beginning with a few schools in the early 1990s.
  Technology of the time could add only limited regional ATM access with campus cards tied to student accounts. And some early partnerships put unrealistic demands on students, such as mandating that student deposit accounts be with partnering banks that charged monthly fees if accounts dropped below $500, Huber says.
  "There was excessive greed by banks and schools who were drooling over the potential revenue, which never happened," he says. "They were based in figures that weren't in tune with the way students operated."
  When the expected revenue did not appear or when partnering banks were acquired or merged, many financial institutions let partnership agreements lapse. Schools then were burdened with the need to reissue campus cards every time a new partnership or new technology required it. "Florida State in the first 10 years recarded their campus five to seven times," Huber says. "[Other schools] are saying, 'I don't want to get involved in this. There are too many horror stories.'"
  STAY IN SCHOOL
  Lowell Adkins, executive director of the Phoenix-based National Association of Campus Card Users, says that after the early hubbub, financial institutions and schools reflected on what had not worked. "Everybody kind of backed off and wanted to take a review," he says. "The schools reset their expectations of what they wanted for the financial institutions, and the financial institutions did the same."
  Whitney Bright, vice president of campus banking at Minneapolis-based U.S. Bank, agrees that financial institution fickleness has made schools wary. "Several banks jumped in, then several banks jumped out," she says. "They thought they could jump in and it would be hugely profitable out front."
  U.S. Bank has maintained campus card partnerships since its first one in 1996 with Xavier University in Cincinnati. It now has 29 partnerships, perhaps more than any other institution.
  The partnerships are not lucrative up front, but that is not the point, Bright says. U.S. Bank is on campus to acquire new accountholders that it hopes eventually will grow into loyal, and profitable, depositors and borrowers after graduation.
  Bright says banks that have remained in campus card partnerships while others left have an advantage in gaining new partnerships now. "We're seeing more schools becoming more comfortable with partners," she says. "Many are seeing U.S. Bank has stayed for awhile."
  Bright says that while most schools still manage their own campus card transaction programs, often with help from payment systems vendors such as Cbord and Blackboard, other schools prefer to let bank partners drive more transactions on and off campus. "They've said to us, 'We'll be the university. You will be the bank and handle the transactions,'" she says.
  One of U.S. Bank's newest customers is the University of Wisconsin at Stevens Point.
  The school reissued its PointCard campus cards before the fall 2005 semester to carry the U.S. Bank logo, magnetic stripe coding and bank identification information. The cards also support such traditional on-campus functions as cafeteria payments, dorm access, library privileges, and other on-campus purchase ability from prepaid campus card accounts.
  Students now can opt to open U.S. Bank checking accounts and enable the cards also to function as PIN-debit bankcards accepted at 1.2 million merchant locations across the country.
  Jerry Lineberger, who directs the PointCard program, would not disclose school revenues from the U.S. Bank partnership but says they do help fund several scholarships at the school.
  The Wisconsin school's own PointCard campus card system, which the school implemented in 2001, still operates on the same cards in tandem with the U.S. Bank partnership. Of 7,788 student and staff cardholders in the 2005-2006 school year, 5,712 opened PointCard "PointCash" accounts, drawing from more than $1 million in deposited stored value.
  PointCash's popularity was boosted a few years ago by online account reloading and management capabilities. "Our chancellor was surprised by that, but [students] in their 20s were, like, 'Duh!'" Lineberger chuckles.
  Bright says online banking functions are essential for student accounts.
  The school also enhanced its PointCard popularity by gaining its acceptance at 12 to 15 off-campus merchants ranging from restaurants to a discount supermarket chain, Lineberger says. Merchants offer such rewards as 10% discounts and free beverages for payments from PointCash accounts.
  For off-campus PointCard transactions that tap into PointCard accounts, the school uses merchant card readers, processing and some other campus card services provided by Blackboard. Blackboard charges merchants 2% to 10% of the sale amount, depending on volume.
  FAMILY DECISION
  Administrators, students and faculty at Stevens Point went through a long, public discernment process to decide whether to partner with a bank, Lineberger says. Many students and faculty were concerned about partnering with a large bank that also is a major credit card issuer, particularly after the school's policy board had passed a resolution to no longer allow credit card marketers on campus.
  Lineberger and a colleague also wanted to push U.S. Bank to provide financial education workshops. "From talking to students, we found that they really didn't know how to manage their money," he says.
  Ultimately, the school's student government approved the partnership, with the stipulations that any revenue from the program would fund scholarships, that a U.S. Bank branch employee would keep regular hours at the student center to answer questions and that bank representatives would conduct annual series of financial education workshops on campus.
  Lineberger says he and other administrators at the university will continue let student demand influence the shape of the campus card program. "Our students have a fairly large voice in what we do or don't do," he says. "It's their money. We just work here."
  Demand or not, U.S. Bank enables only PIN-debit functions on its campus cards, and bank representatives will not disclose whether the bank is planning to add signature-debit functions as well. "I'm not sure how the future will go," Bright says. "I think having a true signature card is appealing for campuses and students."
  So far, Charlotte, N.C.-based Wachovia Bank claims to be the only financial institution that enables signature-based Visa check card functions tied to campus cards, via instant issuance of cards at four of its 15 partnering schools.
  Not every campus is up to the additional requirements of enabling optional Visa check card functions on campus cards tied to Wachovia accounts, says Temple Richardson, who manages campus card relationships for Wachovia.
  Schools must construct card offices with the security of bank branches, keep Visa-branded card stock in locked vaults, monitor vaults and card-issuing equipment with security cameras, and restrict human access to the card stock and issuing equipment.
  "We employ or we bring in Visa security experts into the mix when they're going through this to help them understand," Richardson says.
  Wachovia inherited its first campus card partnership, with Virginia Commonwealth University, when the bank acquired Central Fidelity Bank in 1998. The partnership continues today.
  Richardson agrees that student deposit accounts are not profit-makers for banks, but they can help glean future customers. Richardson says about half of students at partnering schools open Wachovia accounts tied to their campus cards.
  CLOSED CAMPUS
  Most schools still prefer to keep their campus card systems closed to outsiders. With some 50,000 students, Ohio State University is perhaps the largest campus card program that continues to operate without a bank partnership. Ohio State added payment functions to its BuckID cards in 1995 to cover campus dining rooms.
  Today, all of its vending and copy machines, laundry rooms and on-campus merchants accept the cards, as do some 160 off-campus merchants within 2 miles of campus. Students load value on the cards via a secure Web site using credit or debit cards, at library payment terminals with cash, or at the campus card office using cash, payment cards or checks.
  Most merchants purchase separate mag-stripe readers provided by Blackboard for BuckID acceptance. David Anthony, director of the school's BuckID program, says most merchants accept the fee of 4% to 5% of the sale the university charges as a reasonable expense to draw students into their stores.
  "Most retailers view BuckID as a marketing expense, not a transaction expense," Anthony says. Student use of the cards off campus generates $9 million in net card sales annually and about $400,000 in net income.
  Anthony says that because Ohio State's campus card program already was well developed, with extensive merchant acceptance, before banks began to approach the school, it has less need for a bank partnership to make the cards more useful to students.
  While Ohio State administrators are not closed to the idea of a partnership, he says they are wary of being partners in relationships that sometimes lead to bounced checks or debit payments by spacey or cash-strapped students.
  "If you look at bank debit cards, they nearly always have overdraft charges that can be significant," Anthony says.
  Such skeptical campus administrators and past missteps continue to make campus cards a challenging market to enter. But the current spending and future earning potential of college students keeps some banks intent on making the campus card partnership grade.
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