Student Banking Via PayPal: It’s a Reality


PayPal has taken a giant step closer to big-time banking with its announcement that it will enter the college student banking market. What’s the deal, and is it a good one for college kids – and for their wary parents? Let’s take a look.

First, you have to give PayPal credit. From a marketing standpoint, the timing couldn’t be better. Many banks are getting out of the student loan game, and are making no great effort to reach out to younger consumers in bank deposit categories. Expect that trend to continue with the imminent Credit Card Reform Act, which places strict rules on how consumers aged 21 and under can get a bank credit card.

Consequently, the student banking field is increasingly open – especially for a deep-pocketed online financial services provider that is already well known to younger consumers – and the parents who often use PayPal to buy things like video games or iPods on eBay (Stock Quote: EBAY) for their kids.

Now here’s the deal. PayPal is wading into the student banking market with a new debit card program – called the Student Account. The account enables parents to deposit cash into a PayPal account for their kids, set limits on online transactions, and move money around using a cool new application on the Apple (Stock Quote: AAPL) iPhone.

The PayPal banking program has no overdraft fees – because (and parents should love this) if there’s not enough money in the PayPal account to cover a purchase, the transaction is automatically rejected. Compare that to bank debit card transactions, where consumers who commit the cardinal sin of an overdraft are dinged up to $35 per transaction.

According to the PayPal Web site, the Student Account also offers the following services

  • Permissions. Parents can set permissions for individual teens to designate how the account can be used. They can also require that their approval is required when a teen receives money in the account.
  • Mobile Features. Parents can use their mobile phones to check account balances and transfer money to their teens’ account. Additionally, teens can check their account balance and easily request money from their parents via simple text message.
  • Alerts. Parents can receive alerts notifying them when their teens’ payments exceed a certain amount or when a specified low balance is reached.
  • Built-in security. As with all PayPal accounts, the Student Account allows teens to shop online without exposing any financial information.

On the downside, the PayPal account isn’t linked to a student’s existing bank checking account, and that could be a hassle in depositing checks made out to the student’s name (like birthday cards or paychecks). The money has to be first deposited into the parent’s account, and then into the Pay Pal Student Account. Not too many students, raised on the mantle of immediate gratification, will appreciate that little wrinkle.

Still, for parents looking to find a creative, user-friendly, online way to get their college kids into a student banking account, PayPal merits a look.

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