It's move-in day at Penn State University, and First National Bank of Pennsylvania employees are set up outside their branch on the busiest corner leading to campus to greet thousands of new students and their parents as they descend on campus.
First National is hustling to win over students before they begin orientation, where they are encouraged to open an account with another Pittsburgh-based bank, PNC Financial Services Group Inc., which pays for exclusive rights to market on Penn State's campus.
First National is a subsidiary of F.N.B. Corp., a regional bank with $34 billion in assets to PNC's roughly $409 billion. F.N.B. believes exclusivity agreements like the one at Penn State put it and other local banks in college towns across the U.S. at a disadvantage.
PNC has 58 exclusivity agreements with universities, part of a bigger industry trend. Forty percent of all college students attend a university that has an agreement with a financial institution, according to a study by the Consumer Financial Protection Bureau, a regulator. Banks with enough resources typically pay millions of dollars for the exclusive rights to market deposit products on campuses.
At Penn State, the restriction "significantly limits a bank's ability to go in and compete for those students," F.N.B. CEO Vincent Delie said in an interview.
But the banks that have these exclusivity agreements note that students can bank with nearby institutions outside the campus border.
"I imagine they feel that way because they can't walk on campus and talk to students," PNC Head of University Banking Nick Certo said in an interview. "But the fact is that at almost all of our contractual schools, there are community banks right across the street from campus."
Regine Fiddler, chief marketing officer of BankMobile, made a similar point. New York-based BankMobile is the largest player in this space with 268 agreements, according to a 2019 study by nonprofits U.S. PIRG Education Fund and Frontier Group. Despite the large number of agreements, only 21% of students at the universities BankMobile partners with have a campus debit card account.
"I don't think that's an advantage that we have," Fiddler said in an interview. "The students always have a choice.”
Heated deposit competition
The fight for customers is not just playing out in university towns. Across the industry, community banks are battling larger competitors for deposits in an environment where customers increasingly value digital access. Exclusivity agreements can mean a stream of young customers who the banks hope will remain loyal once they enter the workforce.
"The idea is, if you get them while they are young, they will stay with you after that," D.A. Davidson Director of Institutional Research Gil Luria said in an interview.
An exclusivity agreement means only one bank is allowed to market deposit products on the university's campus. Some agreements also link a student's identification card to the bank's debit card.
Universities and their partner banks view the agreements as mutually beneficial.
PNC's Certo said these agreements give students convenient access to bank staff and ATMs on campus, while also providing a "predictable source of new business" for the bank.
PNC and Penn State entered a five-year agreement on Jan. 1, 2015. According to the agreement, PNC aims to open 10,000 student accounts and 500 employee accounts per calendar year. Each year that goal is met, Penn State receives $1 million from PNC. If the university falls short of the target, Penn State only receives a fraction of that payment. Penn State also received a $1.5 million signing bonus from PNC.
The agreement explicitly states that Penn State must prohibit all financial institutions from establishing or operating a branch on campus, with the exception of Penn State FCU. The university asked for the credit union to be exempt in the agreement, Certo said.
The agreement is billed specifically as a deposit-gathering effort, and PNC cannot market credit cards or student loan products. The contract is up for renewal in 2020.
The U.S. Department of Education is the only regulator that oversees these agreements, according to Certo. The department did not reply to a request for comment.
Finding other ways to compete
Banks that do not have exclusivity agreements are finding other ways to compete for student deposits.
F.N.B. developed a "clicks to bricks" strategy combining digital and branch experience to attract student business. The bank set up a branch on the busiest corner of student foot-traffic right across from Penn State's campus about a year after PNC signed its contract with the university, according to Delie. F.N.B. ranks second in deposit market share in State College, Pa., behind PNC.
Baton Rouge-based Investar Holding Corp. uses technology to compete for deposits at Louisiana State University, where Gulfport, Miss.-based Hancock Whitney Corp. has exclusive rights to the campus. Investar launched a mobile app allowing customers to video call a banker to replicate a face-to-face meeting in a branch.
"It's another way we have trained them to interact with our personnel and allow us to deliver customer service to grow with them through those various life stages," Investar Chief Credit Officer Travis Lavergne said in an interview.
The nation’s two largest banks in terms of deposits — Bank of America Corp. and JPMorgan Chase & Co. — also rely on technology to win deposits. Neither bank has an exclusivity agreement with a university.
"It doesn't have to be on their campus. [Bank of America] is everywhere. They can bank absolutely everywhere with us," the company’s head of consumer and small-business products, April Schneider, said in an interview.
No matter how a bank gains students as customers, there is one goal: to secure their business while they are young and become their financial institution for life.
"We want to be the bank that is going to graduate along with them," Schneider said.