Colleges and universities are filled with next-generation consumers. In recent years, banks recognized that and put considerable effort in to marketing their credit cards. But nowadays banks use a different approach to reach college students — campus ID cards.
The presence of banks at college campuses diminished after the Credit CARD Act of 2009, which forbid marketing of credit cards within 1,000 feet of the campus border. In one fell swoop, banks lost access to a lucrative portion of the American population.
Last year, my cousin was a first-year college student with increasing need to purchase things online. Initially, she asked about credit cards. Thanks to the new laws, anyone under the age of 21 needed a co-signer or proof of stable income to apply for a credit card.
Not being able to meet the qualifications, I suggested she consider a debit card, which meant she’d have to open a student checking account. And to the nearby Chase she went.
This year, her younger brother was in the same predicament. The result was the same.
Their experiences helped me to understand why banks are becoming more aggressive in targeting college students for student checking accounts and prepaid cards — it’s good for banks and it’s better for students than credit cards.
Banks go back to school
In February, Huntington Bank partnered with Ohio State University to introduce a new service that will allow students to link their school ID cards to a Huntington Bank checking account.
It means that the cards will serve as a form of identification, meal card, campus access key and debit card.
If my cousins’ schools locked in this type of partnership with banks, they would have been more likely to open student checking account through the partnering banks. The convenience of a dual-purpose card is already a significant attraction — no need for free T-shirts or Frisbees.
Other banks that have similar programs include U.S. Bank, Fifth Third Bank, PNC and TCF Bank.
In addition to hybrid campus-debit cards, some card issuers are also working with banks to tie prepaid card accounts to student ID cards.
SunTrust Bank, American Express and Discover have sealed deals with colleges and universities to offer such linked campus cards.
Essentially, prepaid cards add a cash account to an campus ID card. Not surprisingly though, they’re not as consumer-friendly as debit cards. These prepaid cards may come with monthly fees, ATM fees and reload fees.
What do banks get out of it?
Students who are interested in a campus/debit card combo will have to open a student checking account that typically comes with no monthly fee until graduation. Banks may not see immediate profits from college students, but they get the opportunity to build a solid relationship before students become members of the workforce.
With a good experience, a student may eventually become a long-term customer who would consider the bank for more profitable products such as credit cards, loans and investments.
On the other hand, prepaid cards offer a more immediate form of revenue. And they are exempt from the latest federal regulations on traditional debit cards.
For better or for worse
I believe this trend is certainly for the better.
As my younger cousins proved, credit cards are the first to come to mind when young adults start to consider “plastic.” The financial dangers posed by credit cards were the reasons that the government chose to place them out-of-reach from young adults. With high interest rates, credit cards can drown students in debt — when they already face the burden of gigantic student loans.
This is part of the transformation of the young-consumer mindset that their primary means of non-cash card payments does not have to be a credit card.
It’s a way for them to learn what many of their elders did not — you should only spend what you have.