A special-purpose banking company is close to getting its Connecticut charter. New Haven-based Higher One, a company that provides identification cards that double as debit cards for college students and faculty members around the country, expects to have the charter and open its own bank this summer.
Higher One is the partner of a Houston-based bank that handles the company’s banking operations. Executives at Higher One, however, decided years ago that starting their own bank could prove more profitable. But although the state Department of Banking awarded the company’s executives preliminary approval for the bank, the company’s successful partnership with the Houston bank has put those plans on hold – until now.
“We were very comfortable [in the partnership],” noted Mark Volchek, one of the founders of the companies.
The Department of Banking awarded the company its first temporary certificate of authority in late 2001, and it has extended the certificate several times.
But last summer, Higher One’s executives decided to accelerate the process of getting a charter in Connecticut, and their timing was impeccable. A San Antonio bank holding company, Cullen/Frost Bankers Inc., announced last month it was acquiring Higher One’s Houston partner, Horizon Capital Bank.
The announcement was not a surprise to Volchek and his partners.
“It’s something we thought would happen anyway,” he said.
So Higher One executives hope to have their own banking charter by the third quarter of this year. They are waiting on word from the Federal Reserve and the Federal Deposit Insurance Corp., Volchek said.
Little will change with the way the company is run, he said. They may need to hire more people to deal with compliance and other banking issues.
“With our customers, [the transition] is going to be pretty transparent,” Volchek said.
Rapid Expansion
Higher One was launched about five years by Volchek, a Yale University alumnus with a master’s degree in economics, and two friends with whom he graduated after they saw a need for college identification cards that could also be used as bank cards.
The company forms partnerships with universities and takes over the production of the school’s identification cards. The identification cards double as MasterCard-branded debit cards. Students, staff and faculty can make deposits online at Higher One’s Web site.
Higher One has been expanding its business relatively rapidly. At this time last year, it served 13 universities. It now works with 21, and Volchek and the other executives hope that number will be up to 30 by the end of 2005.
Currently, the company does not serve any colleges or universities in Connecticut. Its list of clients includes Pace University in New York and the University of Wisconsin at Stout.
Higher One’s services extend beyond providing identification and debit cards. The company has a product called OneDisburse, which offers universities a different way of handling refunds to students. Refunds often are generated when there is extra money leftover from a student’s financial aid after the college or university collects tuition, money for room and board, and other fees. And the refunds are getting more common, according to Higher One. Since the number of students who receive financial aid increases as tuitions increase, universities are dealing with more and more refunds.
Therefore, Higher One lets the college or university transmit one file with information on the amount of the refunds and the students who should get them. The company then disburses the refunds to the individual students by either depositing the money into the checking account that the student has associated with his or her identification card, sending it either as a direct deposit to a third-party bank or as a paper check.
The process helps save the college or university a large amount of time and money and improves customer service to students by allowing them to decide how they want to receive their refund.
The service integral to the OneDisburse service is the OneFinance service.
“When a cardholder goes through the setup of their online account and makes a refund preference choice, they also have the choice to open a OneAccount free checking account and utilize the services tied to it,” according to Higher One.
Those services include a free checking account, which has no monthly fee year-round and no minimum balance, a Web site customized for each school, online statements and checks. Higher One also has free ATMs on or near each campus served.
The student also has the ability to request money from family members through their checking account and the family can send the money electronically. Accountholders can send money to another accountholder instantly from their OneAccount, and family or friends can sign up and electronically send money to a student’s OneAccount from any bank account.
There is also a rewards program associated with the card. Higher One recruits local and national merchants who give students points for each dollar spent with their card. The points can be traded for merchandise and gift certificates through an online redemption center.
The program has been successful for colleges and universities that take part. The University of West Georgia and Kennesaw State University won a 2004 Best Practices Award for their implementation of Higher One’s refund disbursement program. UWG and KSU won first place in the Finance and Business Category and won $15,000 jointly. The winners of the award were selected based on the impact on operations; benefits provided to students, faculty, staff and others; and effectiveness and efficiencies created, including cost savings, cost avoidance or productivity increases.