Banks Struggling to Reach College Students

by Mercator Advisory Group 0

From a CR80 News article:

Campus card bank partnerships, like many financial service offerings, are having a tough time as increased regulation makes it harder for banks to turn a profit and make programs attractive to schools. Despite this challenge, 2011 saw some growth in the number of programs and several banks did see their numbers increase.

The biggest issue for banks with campus partnerships is how to make money. As regulators clamp down on fees banks can charge cardholders and merchants, the profitability matrix has changed. The pendulum has shifted forcing banks to focus less on fee income to make the business case and more on the long-term value of the customer relationship.

New regulations are playing a role in a bank’s ability to do business, and they will likely have an even larger impact in 2012 and beyond. The biggest change is the Durbin Amendment, named after Sen. Richard Durbin (D-Ill.). The rule was an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

In effect since October 2011, Durbin caps the interchange and transaction fees banks can charge merchants to accept debit cards. Banks were charging up to 44 cents per transaction but the amendment slashes that nearly in half, to 21 cents plus 0.05% of the transaction (2 cents average). Issuers can charge an additional penny if they have approved fraud-prevention standards in place.

Durbin fee restrictions only impact banks with more than $10 billion in assets, banks considered large under the regulation. Smaller banks with assets less than $10 billion can continue to charge merchants at pre-Durbin rates.

With financial institutions searching for ways to reach new customers, some of the more savvy ones consider college students as more than just a fee-generating opportunity, but an effective way to connect with high-potential customers.

Targeted outreach, particularly with students with an upside potential for profitable long-term relationships, can provide long-term benefits, including the building of brand awareness, loyalty, and future cross-sell opportunities.

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