Is tech the 'front end gateway' to nab college students as customers?

Banks and fintechs have a shaky reputation when it comes to serving college students.

"There is a long history of financial services companies looking at students and seeing dollar signs," said Ben Kaufman, director of research and investigations at the nonprofit Student Borrower Protection Center.

The Credit CARD Act of 2009 restricted the degree to which credit card companies could bag customers under 21 years of age, such as by requiring a co-signer and limiting marketing efforts. But fintechs and other financial services companies setting their sights on college students have multiplied.

For example, SoFi Technologies, which made its name in student loan refinancing, is now a chartered bank offering a panoply of services, including private student loans. It recently sued the federal government to end the moratorium on federal student loan payments, citing harm to its business. Mos is a challenger bank that launched in 2017 and helps users find jobs, fill cash-flow gaps and get personalized help. Several fintechs, including Savi, Summer and Candidly, partner with financial institutions or target consumers directly to help people manage their student loan repayments.

Many products have earned a poor reputation. In its College Banking and Credit Card Agreements annual report to Congress in 2022, the Consumer Financial Protection Bureau noted "Colleges [can have] separate financial interests that conflict with those of their students. … Financial products and services that are specifically marketed to students often come with unique consumer risks." The report points to BM Technologies, formerly known as BankMobile, as one example of a financial service provider appearing to offer and promote more costly products than what students could receive from other — or even the same — providers. It highlights that the company's Vibe checking account, which is marketed directly to students, carries a $2.99 monthly fee for balances under $300.

"BM Technologies is on a mission to provide affordable, transparent, consumer friendly banking to millions of Americans, and our student checking account offering supports this mission," the company said in a statement. "We are proud to say we were one of the first movers in eliminating many common account fees. Many large banks are now following our lead. BMTX maintains compliance with Title IV Department of Education Cash Management Regulations and remains committed and dedicated to offering an affordable student checking account."

Kaufman worries that flashy branding or a school's logo on a financial product will lend a product laden with fees more legitimacy than it deserves.

"Over the past decade a generation of self-appointed entrepreneurs saw college students as a profit center," said Kaufman. "There has absolutely been an interest in developing relationships using technology as a front-end gateway to get people into longer term banking relationships."

College students are still a segment that financial institutions are eager to grab. Their allure is no more palpable than in JPMorgan Chase's acquisition of college financial-planning website Frank, which devolved after JPMorgan Chase allegedly uncovered that the vast majority of Frank's purported 4.25 million users were fabricated. In its lawsuit, JPMorgan Chase acknowledged that college students represented a market it wanted to better reach.

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Some financial institutions are developing or integrating digital-first products that they point out are fee-free and believe will help college students manage their finances or make smart choices.

One such service is Collegiate, a digital credit union developed by Michigan State University Federal Credit Union and bank technology provider Nymbus. It debuted around the same time as MSUFCU's other brand, AlumniFi, a digital credit union for college alumni. Nymbus is the core provider for Collegiate, handling all transactions and accounts. It also operates the call center.

MSUFCU felt the name "Collegiate" could easily carry over to any school it partners with and that a digital-only product would suit young college students well. Although there are branches of MSUFCU on Michigan State University and nearby Oakland University campuses, and students use them, "traffic is not the same as it used to be," said April Clobes, CEO of MSUFCU. "Or they use the mobile app or digital services exclusively."

Collegiate launched on March 1. Its first partner is Olivet College in Olivet, Michigan. Currently, Collegiate offers a no-fee checking and savings account and a debit card. It does not charge overdraft fees. A credit card and signature loan will follow shortly. Like AlumniFi, Collegiate is integrating or linking within the app to a series of fintechs. Spave lets users round up spare change from debit card purchases and donate it to charities. Ever Green 3C provides financial education. Nickels helps customers examine their credit card usage and debt and consider refinancing options.

Collegiate will pay colleges to promote the digital credit union on campus; it will also hold in-person and online financial education programs. "We have opportunities to talk with people about our institution, why it's beneficial, why a credit union is a great choice and how we focus on members," said Clobes.

Clobes says that Collegiate meets all regulatory requirements and will not charge high rates on its student credit card because they are new to credit. Instead, Collegiate will evaluate their ability to pay based on such factors as income from part-time jobs.

"When I was in college I had two part-time jobs and I could meet my credit obligations," said Clobes. "We look at this as, the student was admitted to a university. They have some level of responsibility and the ability to pay tuition. We look at those factors in combination and set appropriate rates."

Some financial institutions seek to buy technology that might appeal to college students rather than build it. In September, Citizens Financial Group in Providence, Rhode Island, announced that it would acquire online college planning platform College Raptor. The website has articles and tools ranging from College Match, which suggests colleges to users based on their GPA, location, culture and more, to the Financial Aid Offer Comparison, in which users upload their financial aid letters to compare net prices, out-of-pocket costs and more.

"It's a very compelling platform for high school students trying to figure out their college journey. What college might be right for me? What majors should I think about?" said Chris Ebeling, head of student lending at the $226.7 billion-asset Citizens. "Citizens was interested in this as a unique opportunity to engage with this population."

The bank already has a foothold in this market, as a student lender and purveyor of a student checking account. College Raptor will be a free resource to Citizens customers. A secondary benefit for the bank is potentially marketing to College Raptor users. The bank says that College Raptor has seen millions of annual visitors, but declined to give a number of registered users.

For Ebeling, the biggest differentiator of College Raptor is its ability to calculate net price estimates at any school using the College Match tool.

"It matters because sticker price and net price are very different," he said. Although this capability is also available on college websites, "if you are trying to do this en masse in a matter of minutes, College Raptor's College Match Tool is the best place to do that."

Over time, Citizens will more closely associate the College Raptor brand with the bank's own brand, and fully migrate College Raptor technology into Citizens' tech stack. Ebeling emphasizes that the Student Loan Finder, which compares loans for students from multiple providers, will remain impartial, even though Citizens' student loans will be one of those options.

"We are not steering folks toward schools we lend to or explicitly to Citizens as a lender," said Ebeling.

There is no fee for any of College Raptor's services to consumers; lenders pay referral fees to the website. "The only financial product that is on this platform is the loan finder, which helps customers objectively view a set of offers from various lenders," said Ebeling. "Nothing is pushed on anyone." The loan finder ranks offers based on rates and on rate transparency, or how much information the lender has disclosed.

"There are a lot of Federal Trade Commission, CFPB, Department of Education and other financial fiduciary principles that need to be given attention," said David K.A. Mordecai, a professor with the University of Chicago Booth School of Business. "Access to customers earlier in their life cycle could be attractive to banks provided all these other considerations are addressed."

In general, Kaufman is skeptical of fintechs targeting college students that make big claims. For one, he finds that most students choose colleges based on proximity rather than judiciously comparing their options. He also can't think of student-oriented fintechs that have meaningfully impacted the college experience.

 "A lot of students use Venmo and Cash App and maybe Splitwise," he said. "I struggle to think of a single company that has substantively made student lives better."