Should your school be a financial services provider? It's no longer enough to provide an education; many schools now provide credit, banking services, even insurance protection. But are financial service partnerships sweet deals for schools, or more trouble than they're worth?

University Business, Jan, 2003 by Elizabeth Gardner

St. Norbert College (WI) has its own branded Internet bank--SNCBank.com--and gets $5 for each account opened by one of its 2,000 students, or by faculty, staff, parents, or alumni. What's more, the school no longer pays a local bank $3,000 each year to keep a lone automated teller machine on campus. Instead, St. Norbert boasts three ATMs of its own, courtesy of its service provider Sutton Bank. "We're always looking for cutting-edge things," says the school's president, Bill Hynes. "Our Internet bank sends the subtle message of modern technology."

In Claremont California, Claremont McKenna College (one of a group of five small elite liberal arts colleges there) recently began offering a branded MasterCard to its 8,300 alumni. MBNA, the largest provider of collegiate affinity credit cards, didn't have to be courted, says Elenor Taylor, director of Alumni Relations; "they came to us."

And banking and credit are not the only financial services IHEs are glomming onto: insurance is now a revenue generator for some institutions, as well. Meyer and Associates (www.meverandassoc.com), an insurance administration company that works only with colleges and universities, negotiates insurance agreements for all its clients as a single group. According to company President Ed Meyer, that means volume purchasing power, and good news for schools of all sizes. "The smallest school can offer the same insurance program as the largest one," he says.

But college-offered financial services are not new: Certain schools have been offering their students and alumni financial services for more than 30 years, generally through the alumni association. IHE-sponsored life insurance has been around since the 1970s, credit cards since the '80s. It is banking services not affiliated with a school-based credit union that are the latest wrinkle, made possible by the Internet. Short-term medical insurance is another hot item, helping new graduates bridge the gap between school insurance and their first job, or providing a stopgap for newly unemployed alums.

Still, these programs continue to be more likely to turn up in larger schools, especially state institutions. Smaller private schools have, thus far, been generally less inclined to try them out. But MBNA officials disclose the company works with about 700 schools, public and private. And while there is no agency actually tracking the number of IHEs offering insurance to alumni, Meyer says he is aware of about 500 engaged in that practice.

Jumping on the Bandwagon

Meyer insists it's a mistake for schools to think they have to be big to take advantage of these kinds of programs. "The best responses we get," he says, "are from small, private schools with high academic reputations--especially those with religious affiliations." The services are relatively risk-free, he points out, as long as the school chooses a vendor with a solid track record and sterling customer service. And the services don't carry any out-of-pocket cost, he explains. For the privilege of acquiring its students or alumni as customers (and for the lifetime customer value attached to those acquisitions), the vendor usually pays the school a flat fee per participant or per sale; or in the case of credit cards, a percentage of purchases. And boy, do those fees add up. Such programs can provide a welcome--and steady--stream of income, report alumni associations. The Duke University Alumni Association snags one-third of its annual revenue from its credit card. And the Brown University Alumni Association reaps $350,000 a year--70 percent of its non-salary operating budget--from its affinity programs, which include a credit card and various insurance products. In fact, affinity credit cards are often the biggest non-dues moneymaker for alumni associations--not to mention a real boon to the credit card companies.

According to Laney Funderburk, director of Alumni Affairs at Duke, "A new credit card customer can cost a bank $100 or more to acquire. But if the company works with a university, it can make easier sales." To the credit card companies, alumni credit profiles are like gold, They are customers who are likely to spend and likely to pay their bills. With greatly reduced customer acquisition costs, profit margins expand.

In exchange for the fees financial services pay their IHE clients, the financial services provider gets a mailing list, plus a "liaison" staffer who makes sure the list is clean and up-to-date, approves direct mail pieces and other marketing materials, and supplies school logos, etc. The financial services provider handles all marketing and customer service.

IHE-provided customers get services they can trust, the satisfaction of supporting their alma mater, a card with no fee, and often a lower interest rate than with a non-affiliated card (though not necessarily the lowest one around). The card also sports the college seal or a campus image.

As with all affinity programs, consistent and ongoing marketing is key. "Our credit card was dormant until a couple of years ago," says Lisa Raiola, VP/Alumni Relations at Brown. "Then we renegotiated the contract and started having quarterly meetings with the vendor." More frequent direct-marketing mailings brought the program back to life. "Now the program is our biggest moneymaker, and the program that the most alumni take advantage of."