School Card Ties to Debit Vary, But Closed Systems Dominate

  Coinciding with students heading back to school, more colleges and universities are launching campus identification cards with open- or closed-loop debit functions.
  Slippery Rock and Truman State universities in August implemented ID cards with debit functions for students, faculty and staff. Like most schools, Slippery Rock of Slippery Rock, Pa., ties its cards to a closed-loop payment network. Truman, in Kirksville, Mo., however, has joined a growing number of schools whose cards can be linked to open-loop debit functions tied to deposit accounts.
  Last year, open-loop cards supported by the Visa or MasterCard brand accounted for $400 million in campus card transactions, while closed-loop cards accounted for $13.6 billion, says Tim Sloane, director of debit advisory service at Waltham, Mass.-based Mercator Advisory Group. About 80% of colleges and universities use some form of closed-loop card, says Sloane, while only a small percentage of institutions have open-loop cards.
  Transaction values for both card types are rising as more schools adopt ID cards that support one or both types of debit functions, he adds.
  Slippery Rock has teamed with Heartland Payment Systems Inc., a Princeton, N.J.-based payment processor, and Enid, Okla.-based Central National Bank to give Slippery Rock's roughly 9,500 students, faculty and staff contactless identification technology linked to a PIN-based prepaid account called Rock Dollars.
  The identification technology consists of cards and adhesive electronic tags that can be placed on cell phones or other items, says Rita Abent, executive director for Slippery Rock's public-relations department. With the adhesive electronic tags, cell phones can be used as payment devices.
  The Rock Dollars accounts can be loaded through direct deposit of checks, at an on-campus ATM or by transferring funds online, says Abent. Rock Dollars participants can check the status of their accounts online.
  Truman State began issuing new identification cards to its 6,500 students, faculty and staff Aug. 6. The cards can double as PIN-based debit cards for purchasing and ATM access if students choose to open U.S. Bank checking accounts and activate the cards' debit capabilities, a university spokesperson says.
  Minneapolis-based U.S. Bank provides the banking technology for Truman's cards, which the university is distributing.
  For both universities, if students elect not to activate their cards' debit features, the cards still can be used for on-campus identification, building access, and checking out library books.
  Truman's debit cards also can be used at all ATMs and merchants that accept Interlink, Visa USA's PIN-based point-of-sale debit network, while Slippery Rock's prepaid cards are accepted only at on-campus merchants, vending machines and at certain off-campus merchants that work with Heartland to accept Rock Dollars.
  After issuing a request for proposals for Slippery Rock's new ID cards and reviewing the responses, the university chose prepaid accounts because it "was an easier first step than partnering with a full-fledged checking account," says Abent. "It's a big step for universities to do something like this."
  Besides working with Truman State University, U.S. Bank offers combination identification and debit cards in conjunction with 29 colleges and universities, including Omaha, Neb.-based Creighton University, Evanston, Ill.-based Northwestern University and Fargo, N.D.-based North Dakota State University.
  The open-loop cards linked with a U.S. Bank checking account help establish consumer relationships early in life, thus creating long-time customers, says Whitney Bright, general manager of campus banking at U.S. Bank.
  "From a bank perspective, it's a gateway product. It gets the student signed up," says Red Gillen, senior analyst with research and consulting firm Celent LLC's banking group, a Boston-based consulting firm, adding that there is usually a financial benefit for universities as well.
  Truman State University, for example, receives royalties if a specific number of students open a checking account with U.S. Bank, says Judy Mullins, university controller. She declined to provide further details.
  Debit functions are better than credit functions for combining with ID cards, says Bright. "Everyone needs a checking account, [but] not everyone needs a credit card," she adds.
  Slippery Rock made a conscious decision to combine prepaid accounts with identification technology. "Part of our function is to teach people how to live in the real world. In the real world, there is credit, but this is the first step," Abent says.
  "If they spend all the money in their account, they won't have any left," says Abent, adding that many graduates leave school with heavy student-loan debt, and they do not need extra credit card debt.
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