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."

The Student Debt Question

Still with the economy and student-debt figures what they currently are, the trickiest decision, say school officials, is whether to offer the card to students. "Some students can get into bad debt situations," says Ernie Gale, executive director of the University of New Hampshire Alumni Association. If students rack up charges that are enough to yield significant income for the school, they're probably amassing more debt than they can handle, say detractors. But alumni association officials point out that students are probably swimming in credit card offers anyway, and even if they don't own a credit card during their college years, they'll certainly need a card after they graduate. Gale maintains that by offering students a sponsored card with a low credit limit (typically $500), the school can actually help teach students how to manage money--and even go to bat for them if they get into trouble. "We've interceded with the bank on behalf of some students, to help them work out a payment plan," he explains.

According to Paula Bonner, president and CEO of the University of Wisconsin Alumni Association, "We have a great sensitivity about marketing to students. Through us, those accounts will be watched and managed very carefully. We have student-safe policies around any credit limit increase."

Banking on Your School

Branded Internet banking is usually offered by the school itself, rather than by the alumni association, primarily because students are the core market for the bank's offerings. Chicago's DePaul University, and Drexel University in Philadelphia were the trailblazers here, each opening its bank a couple of years ago, once Internet-based banks were proved feasible, if not necessarily profitable. But although customer acquisition costs helped sink the first generation of Internet banks, the DePaul and Drexel service providers--Sutton Bank (www.suttonbank.com) and The Bancorp Bank (www.thebancorp.com) respectively--are betting that affinity Internet banks will inexpensively attract incoming freshmen in need of their first checking account, and will retain them after graduation.

Prime partners. The Bancorp Bank, whose entire business is Internet-based, will open three more collegiate affinity banks (two state school banks and one private school bank) in the next year, according to Vice President Jill Kelly. Kelly maintains that any school with a potential customer base of 60,000--including faculty, students, parents, staff, and alumni--is worth consideration. Sutton Bank, with physical branches in Ohio, has two operational college banks--DePaul and St. Norbert--and was scheduled to open a third for Ashland University (OH) this month, says Executive Vice President Anthony Gorrell. Both companies have several more schools in the pipeline.

What regulation? Interestingly, because the banks don't install deposit-taking facilities on the campuses, they're governed by the banking laws of their parent company's home state, rather than those of the school's, says Gorrell. The Internet allows them to bypass such regulatory nightmares, making affinity banks possible.