While student-only payment methods might cater to an audience with a high turnover rate, that audience is filled with early adopters that merchants want to attract.
"The student environment presents the opportunity to connect a large tech-savvy demographic with a dense population of merchants in a somewhat closed ecosystem," said Justin Muntean, chief revenue officer at Moocho, which provides a mobile payment app for students that can be managed by parents.
Parents start their child's account by gifting them an amount of money, which students can then use to make purchases using the Moocho mobile app. Moocho is active on nine campuses around the country, including the University of California-Berkeley, Ohio State University and Colorado State University.
Moocho's audience is seasonal, and thus the vendor halts marketing of its product during the summer months when fewer students are on campus. Almare Gelato, an ice cream shop near the Berkeley campus, notes that this has led Moocho use to drop off in recent months.
Moocho's main goal is to help small, local merchants near college campuses lure more customers into their stores. But large, national retailers also partner with Moocho in an effort to engage younger shoppers.
"The 50-year lifetime value of these college consumers is critical to future success at major retailers," Muntean said. "These kids are establishing shopping habits today that will stick with them for the rest of their lives."
Moocho takes a fee when it brings new business to a merchant.
Students use Moocho mostly to purchase food and drinks (both non-alcoholic and alcoholic), said Muntean. But because parents can access and manage transactions through Moocho, student users might stop using the card after college.
"While there is always turnover in usage, there are millions of new freshman that enter in each year replacing the graduating seniors," said Muntean.
To capture new users, Moocho employs hundreds of campus ambassadors to market the product on campus, plus the company sometimes partners with universities. "This results in a userbase that is growing exponentially month over month," Muntean said.
While Moocho wouldn't disclose the number of students that continue to use its mobile app after they graduate, Muntean said that many consumers stick with it because of its rewards model. Consumers earn rewards that can be spent at any Moocho merchant.
Products that are specifically branded by one university might have more trouble staying in student's wallets after they graduate.
For example, Bryant University in Rhode Island offers its students the Bryant One Card, which uses Bulldog Bucks that are housed on a dual ID/payment card, recalls Jordan McKee, a senior analyst at 451 Payments.
"While I was in college it worked out really well it was my identification and access control card and payment card. I didn't have to carry my wallet around," McKee said. "But the utility evaporates after you graduate."
McKee said he managed his Bryant One Card through his student account and everything was Bryant University-branded, although he assumes a payment vendor was behind the scenes.
Harvard University has a similar ID/payment card that can be loaded with Crimson Cash. The card can be used for merchants on-campus and nearly 40 merchants off-campus. The product is powered by JSA Technologies, an online and mobile payment and account management provider, through the Bedford, Mass.-based company's cloud-based StudentLink.
Many student-based payment methods use a reloadable prepaid account.
Even though stored-value cards can save merchants and providers on interchange fees, "from a consumer standpoint having to isolate funds for future use isn't all that compelling," said McKee.
While the Starbucks mobile payment app, which relies on stored value, is seen as the poster child of mobile payments, McKee said this has more to do with the coffee shop's daily repeat visitors and the automatic reload capability.
Also consumers today expect choice, so limiting their payment options might not be the best practice, McKee said.
"You can certainly guide consumers to use an option that would be most beneficial for you as a provider, to make the transaction cheaper," he said. LevelUp, for instance, supports credit and debit cards but has been pushing its users to link debit cards to its QR code-based mobile app in an effort to bring down costs for itself and its merchant clients.