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Financial Ties: Core elements of a successful financial relationship

On higher education campuses, different financial accounts are utilized for a host of functions. Most Americans carry an ATM/debit card, a phone card, at least one store gift card, and a couple of credit cards. Today’s college students are no different.

Recognizing this and the impact of these financial accounts, banks and credit card companies have positioned themselves to be an integral part of the college experience. Some have chosen to get involved on the front lines while others have opted to wait for the business to come to them. And a few innovators have gone one step further, actually becoming an official part of campus life through a contracted relationship with the campus ID program.

Types of Financial Accounts

Almost every campus card has some type of financial account tied to it. Many have two, three, or even more accounts of different varieties serving distinct functions. Lets review the more common variations of these different financial accounts.

Declining balance accounts
The number one function, besides identification, of campus cards is meal plan access. An estimated 85% of card programs link to a meal plan. Although some meal plans are still points-based or usage-based, many offer declining balance accounts in place of, or as a supplement to, the earlier meal plan options. With declining balance accounts, students deposit funds that they can spend at food service locations on campus and, in some cases, at other points of sale including bookstores, campus convenience stores, vending machines, etc. In a declining balance system, funds are deposited into the account (typically via check or transfer to the meal plan provider or institution) and are “spent down” over time. Online system providers like Diebold, General Meters, Blackboard, and CBORD utilize declining balance systems as the basis for their ‘flexible spending’ programs.

Stored Value
Another financial function frequently provided with university ID cards is the stored value account. Though arguments as to what defines stored value, or any of these accounts for that matter, are frequent, a common definition is pre-payment of monies to a card/device that enables future purchases to be made on demand. The key here is that most providers of stored value systems avoid using the term ‘account’ when describing stored value. That is because an account implies that the owner of the money is simply entrusting it to the holder. In stored value systems, most consider the value pre-spent when added to the card–so ownership of the deposited funds transfers to the holder on deposit.

These stored value accounts function much like gift cards or other pre-paid cards. They allow the cardholder to spend only the amount on the card or in an account as cashless payments for goods and services. These accounts fall under different regulations than your normal bank account. Typically schools hold all cardholders’ stored value funds in a single bank account. The average purchase made from these accounts is typically under $10 in value. On campus, morefrequently, the amounts are far lower as vending, photocopy, and laundry payments are the most common uses of stored value. A dormancy fee is often charged against remaining funds after a certain period of time. As a general policy, these stored value funds are not typically converted back into cash.

Banking partnerships
The third financial tie commonly linked to campus card programs is created when the institution partners directly with a financial institution.
Between 10% and 15% of campus one-card programs are believed to have an official relationship with a bank for the provision of financial services associated with the student ID card. In the diagram, we have listed more than 60 colleges and universities who have partnerships with national, regional, and community banks as well as credit unions.

Students benefit from the card’s use in ATMs in local, regional, and global networks. Debit card functions are also enabled at accepting merchant locations. Many campuses are working with their second and third generation of banking partnerships.

In the typical bank partnership, students can opt to sign up for a demand deposit account (dda) with the bank partner. This is a standard bank account like any other, but with certain elements geared toward the student’s needs and/or toward limiting the bank’s costs associated with maintaining the accounts. The campus ID card becomes the ATM/debit card associated with the account. In essence, two cards–the campus ID and the bank card–simply share a single piece of plastic. The 16-digit ID number, called an ISO number, is used to reference the bank account and on-campus functions. Depending on the bank’s internal systems, the existing ISO number (if the campus has and uses one) can be maintained while in other cases the bank may require a new ISO number be used so that the cards can be utilized in the ATM/debit networks.

New banking models
The newest bank partnership model makes the student ID card a major label debit card (e.g. MasterCard, Visa) with photo ID. This maximizes the global acceptance of the card, ensuring its use in any ATM or POS device that accepts the worldwide payment platform. While this has been done in the past on a trial basis, Connecticut-based Higher One and Wachovia Bank are the first to make this option a core component of their campus offerings.

What do these models
have in common?
In general, all of these financial models–declining balances, stored value, and bank partnerships–all seek to accomplish a single goal. They all are created to enable a student to pay for services using the campus ID card. And in essence, all of these accounts require funds to be in place and available before a purchase is allowed. So how does a campus decide? And further, why have many campuses opted to have two or even all three of these account types on the same card? Lets examine the argument that can be made for the use of each type of account.

Declining balance

  • “I can restrict the student’s
    spending to my on-campus
    locations thus maximizing my share of the profits.”
  • “I can keep the card from being used in undesirable locations such as those serving alcohol or with adult entertainment.”

Stored value

  • “It enables transactions to be
    conducted without the need to check an external database to see if funds are available (e.g. in offline mode)”
  •   “It is ideally suited for small value transactions such as vending,
    photocopy, and laundry
    payments.”

Bank partnerships

  • “I can maximize the locations that the card is used for payment.”
  •   “I get out of the business of
    ‘acting like a bank’ in case
    regulators decide to pursue
    potential violations.”
  •   “I can create a new revenue stream for the card program via revenue sharing from the bank partner.”

This is a complex decision process and there is no single correct model or combination of models. Each campus has its own set of needs regarding payments and desires regarding the extent to which they want to get involved in the discretionary spending of their students.

But regardless of the model selected, there are several principles that hold true:
1) The more seamless the financial account is with the ID card, the more successful both the offering tends to be.
2) The more locations at which the card can be used, the more likely the cardholder is to use the
financial account.
3) The more education and
marketing provided about the card’s functionality, the more likely the service is to be utilized.

Why do they do it?

For the partnering financial institution, the relationship provides preferential access to the students and the opportunity to cultivate a long-term relationship with the cardholder. For the institution, the relationshipprovides a stable account to deposit student refunds and financial aid payments and to withdraw—when authorized by the student—tuition and other fees. Companion or affinity credit cards are even being offered on campuses to help students establish a credit history responsibly by offering a lower credit limit and reasonable interest rate. And, such partnerships often create a revenue stream for the campus.

The bottom line is that a partnership with a financial provider expands the functionality of the card and often provides essential conveniences to the cardholder. For many campuses banking partnerships have become a key component of the card programs. Interest is at an all time high. In a recent CR80News survey, more than 50% of the campuses responding reported interest in a banking partnership. It seems the marriage between the campus card and financial institutions is here to stay.

Sample student bank account features:

  • First 50 personalized checks free
  • No minimum opening balance required for account
  • Free ATM access at any of the bank partner’s ATMs
  • Free Internet banking
  • Free bill payment and checking
  • Optional credit card with overdraft protection for bank account

College/University Bank partner Start
Univ. of Minnesota TCF Bank 1995
Xavier Univ. U.S. Bank 1995
Duquense Univ. PNC Bank 1996
Florida State Univ. SunTrust Bank 1996
Iowa State Univ. U.S. Bank 1996
Northern Illinois Univ. TCF Bank 1996
Saginaw Valley State Univ. TCF Bank 1996
Univ. of Minnesota – Daluth TCF Bank 1996
Virginia Commonwealth Univ. Wachovia Bank 1996
Guilford College Wachovia Bank 1997
Robert Morris Univ. PNC Bank 1997
Univ. of Pennsylvania PNC Bank 1997
Clayton State Univ. Wachovia Bank 1998
College of Mt. St. Joseph U.S. Bank 1998
Indiana Univ. of Penn. PNC Bank 1998
Minnesota State Univ U.S. Bank 1998
Texas A&M Univ. Wells Fargo Bank 1998
Univ. of Kansas Commerce Bank 1998
Univ. of Northern Colorado Wells Fargo Bank 1998
Univ. of Pennsylvania UPenn Fed. CU 1998
Kansas State Univ. Commerce Bank 1998
Texas A&M Univ. Aggieland CU 1998
Cleveland State Univ. Huntington Bank 1999
Mercer Univ. Wachovia Bank 1999
Miami-Dade CC Citibank 1999
Phil. College of Osteo. Med Wachovia Bank 1999
Spalding Univ. U.S. Bank 1999
St. Cloud State Univ. TCF Bank 1999
Univ. of Pittsburgh PNC Bank 1999
Villanova Univ. Wachovia Bank 1999
Fort Hays State Univ. Commerce Bank 1999
Minnesota State Univ. Affinity Plus Fed. CU 1999
Wichita State Univ. Commerce Bank 1999
Clark Atlanta Univ. Wachovia Bank 2000
Edinboro Univ. of Penns. PNC Bank 2000
Elon Univ. Wachovia Bank 2000
Temple Univ. PNC Bank 2000
Univ. of Akron U.S. Bank 2000
Univ. of Michigan TCF Bank 2000
UNC Chapel Hill Wachovia Bank 2000
Cal State Fullerton Orange Cty Fed. CU 2000
Central Michigan Univ. Independent Bank 2000
Kutztown Univ. of Penn. Penn Security 2000
Northwestern Univ. LaSalle Bank 2000
Oakland Univ. MSU Fed. CU 2000
Drury Univ. U.S. Bank 2001
Morehead State Univ. U.S. Bank 2001
Pennsylvania State Univ. PNC Bank 2001
St. Louis Univ. U.S. Bank 2001
Univ. of Louisville U.S. Bank 2001
UNC Greensboro Wachovia Bank 2001
Baylor Unversity Wells Fargo Bank 2002
Georgia Perimeter College Wachovia Bank 2002
Henderson State Univ. U.S. Bank 2002
Johnson & Wales Univ. Bank of Rhode Island 2002
NC A&T State Univ. Wachovia Bank 2002
NW Missouri State Univ. U.S. Bank 2002
San Diego State Univ. U.S. Bank 2002
Texas Tech Univ. Wells Fargo Bank 2002
Univ. of Arizona Wells Fargo Bank 2002
Univ. of Central Florida SunTrust Bank 2002
Univ. of Wisconsin, Stout Higher One 2002
Arizona State Univ. Wells Fargo Bank 2003
Univ. of Florida Wachovia Bank 2003
Univ. of Houston Higher One 2003

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