Why a Small Bank Sees Big Things in College Prepaid Programs

A small Oklahoma banking company is looking to an ambitious university prepaid card deployment, which also involves contactless payment, to help it diversify a prepaid service it offers primarily to the Hispanic population. Central National Bank, Enid, Okla., is issuing PIN-based prepaid debit cards to the 10,300 students, faculty, and staff of Western Pennsylvania's Slippery Rock University as part of a program the school is implementing with the bank and merchant acquirer Heartland Payment Systems to upgrade its identification cards. The program, which includes all campus points of sale and nearby merchants, is thought to be the first in the nation to rely on dual-function ID/payment cards as well as contactless tags users can attach to their cell phones. Both the cards, which aren't contactless but bear the logos of the Pulse and Star electronic funds transfer networks, and the tags access the same accounts. Central National, which has issued and processed prepaid cards since 2000 and offers its services on a third-party basis to other community banks, has nearly 200,000 cards in circulation currently, mostly with Hispanic customers, says Brud Baker, president and chief executive of the bank. Now, says Baker, the Slippery Rock project will help the bank diversify its prepaid portfolio by bringing in college students. Some 9,400 Slippery Rock students are scheduled to take up residence at the school over the weekend, with classes set to begin Aug. 27. Baker figures the bank and Princeton, N.J.-based Heartland Payment, which is providing hardware for the project, will be in a good position to start selling the concept to other schools after a few months. “Our view has been, let's give this a semester, as this has so far as I know never been done before, get the product right, and then get aggressive about it,” he says. The appeal of this market to Central National, says Baker, is that students are likely to adopt a payment card that is neither a credit card nor a debit card linked to a checking account. “Students need plastic to function,” he says. “We all know the risks of credit cards and students. They can get a debit card, but then they have to open an account where the university is located.” The Slippery Rock accounts, which are held at Central National and include coverage by the Federal Deposit Insurance Corp., can be funded with grants and other aid issued to students as well as by the students and their parents using a Web site, terminals on campus, or a voice-response telephone system. Funds transfers are handled through the automated clearing house network. Besides the dual-function, mag-striped ID/prepaid card, the program also features a small adhesive contactless tag that users can attach to their handsets. The tag allows users to make payments at vending machines, washers and dryers, and other points of sale by waving their phones near a transceiver. While transactions are PIN-authenticated, the bank obtained permission from Star and Pulse to waive PIN entry for small-value card and tag transactions, Baker says. A spokesperson for Heartland Payment says, with students yet to arrive in large numbers, the acquirer hasn't yet compiled figures for number of point of sale on and near campus. Baker says some transactions have already been processed on cards issued to Slippery Rock employees. Once the Slippery Rock project is well under way, Baker expects Central National's service to appeal broadly to schools and other community banks, with Heartland Payment acting as acquirer and selling acceptance to local merchants. “Our idea [is] to sell this product on a national basis,” he says. “It's single-service shopping. We do it all in one place.”