NEW YORK (Dow Jones) -- More banks are hawking prepaid cards as
they try to win over the college crowd, a once lucrative market
that analysts say is less profitable because of regulatory
restrictions on credit and debit cards.
Several lenders have begun offering prepaid cards that double as
a student's campus ID card. Students can use the cards to gain
building access, check out library books and pay for printing or
even beer. Because the plastic carries the logos of card networks
like MasterCard Inc. (MA) and American Express Co. (AXP), students
can use them to make purchases at off-campus merchants and online
retailers that accept those brands.
U.S. Bancorp (USB) said Wednesday it is partnering with North
Carolina State University to offer students the "Wolfpack One
Card," a MasterCard-branded prepaid card that is also a campus ID
card. Students and their parents can load funds to the cards from
existing bank accounts and use the card like a regular debit
card.
North Carolina State, which has 34,000 students and 7,700
faculty and staff, will begin offering the cards to all incoming
freshman this summer, and current students, faculty and staff can
upgrade their existing ID cards to the new cards for a $10 fee
charged by the school.
"We see the students as really the future customers of U.S.
Bank," said Whitney Bright, vice president and market leader for
campus banking for U.S. Bancorp (USB). "They are the ones that we
hope will bank with us while they are in college and look to us as
they graduate."
Until recently, prepaid cards have been marketed mainly to
low-income consumers by non-bank companies such as Green Dot Corp.
(GDOT), NetSpend Holdings Inc. (NTSP) and Western Union Co. (WU).
The cards function like a traditional debit card but lack a
checking account. They also are not subject to the same regulatory
requirements that apply to debit cards, though many providers,
including U.S. Bancorp, say they voluntarily apply those same rules
to their prepaid cards.
Mainstream lenders including American Express, BB&T Corp.
(BBT) and U.S. Bancorp have begun offering them as new regulations
reduce checking-account and debit-card revenue. Certain types of
prepaid cards are exempt from the Durbin amendment, a provision in
2010's Dodd-Frank Act that limits how much big banks can charge
merchants to accept debit cards.
Last year 13% of U.S. consumers used a prepaid card, up from 11%
in 2010, according to a recent study from Javelin Strategy and
Research, which noted the cards were "one of the few major
financial products that have grown in usage in the past year."
Campus ID cards are not entirely new for U.S. Bancorp. The
Minneapolis-based bank currently offers similar cards through more
than 50 colleges, though they include a traditional debit card tied
to a U.S. Bank checking account, Bright said.
This is the first time the bank has offered a prepaid account on
a campus ID card, she said.
American Express, which traditionally issues charge and credit
cards to affluent customers, began offering a campus ID card with a
prepaid account to students at the University of North Florida in
November. The card, one of several prepaid cards the New York
lender has rolled out, can be used at merchants that accept
American Express.
SunTrust Banks Inc. (STI) last year began partnering with
MasterCard to offer the SunTrust Campus Card, also a prepaid
card.
The prepaid push on campuses comes as new regulations have made
it more difficult for banks to market credit cards to young
consumers. The Credit Card Accountability, Responsibility and
Disclosure Act of 2009 included provisions limiting but not
eliminating lender's ability to market credit cards on campuses and
at school-sanctioned events. The regulation also included
restrictions for lending to consumers under 21.
In addition, many banks have said the Durbin amendment will make
it harder to profitably serve lower-income consumers.
"There are banks and card companies who have taken a look at
that said, 'Well, we can't do credit cards on campus anymore, but
we'd still like to develop a relationship with students,' so they
offer prepaid cards as a way to do that," said Ben Jackson, a
senior analyst in the prepaid advisory service at Mercator Advisory
Group.
Bright said U.S. Bancorp is not offering the campus prepaid card
as a way around those rules. Rather, it is responding to what
students want.
"They have an aversion to overdraft [fees], so having a prepaid
card gives them a card that they can fund and it can not be
overdrawn, so they don't get hit with overdraft fees," Bright
said.
Mike Smith, director of Wolfpack One Card Services at North
Carolina State, said via email that the new card will allow
students to receive financial-aid disbursements electronically
rather than a paper check.
Some prepaid cards have sparked controversy for having what
consumer groups say are excessive fees. The Consumer Financial
Protection Bureau has indicated prepaid cards are among the
financial products it will look at for possible abuses.
The Wolfpack One Card lacks most of the fees that other prepaid
cards carry. It does not have fees for enrollment, monthly
maintenance, point-of-sale purchases or ATM withdrawals made at
U.S. Bank or MoneyPass-branded ATMs.
Withdrawals at other ATMs cost $2, and there are also fees for
receiving monthly paper statements, declined ATM transactions and
inactivity if an account is dormant for six months. It also costs
$15 to close an account and receive remaining funds via paper
check, and $20 to receive a replacement card.
-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214;
andrew.r.johnson@dowjones.com
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