The growth of fintech has transformed financial industries the world over. Technologies such as blockchain and cryptocurrencies are changing everything from how we pay for our food to how governments keep track of their budgets. The after-effects of these seismic shifts in modern finance can be felt in every sector – including higher education. Nowhere is this more apparent than in payment processing.
The importance of payment processing to universities may not be immediately apparent. But it must also be considered as of one of the most controversial aspects of modern higher education: student tuition fees.
Tuition fees are the lifeblood of universities. These fees were (before the 1998 Teaching and Higher Education Act) primarily paid by the government. University students can now pay as much as £9,250 a year. In some cases, they can make up over 80% of an institution’s income. Some universities can supplement this through research grants or partnerships in industry, but many struggle to find other revenue sources.
But while fundamentally necessary for the survival of many universities, tuition fees are one of the most politically charged areas of modern higher education.
In November of last year, a study by the Higher Education Policy Institute revealed that just over one third of students felt that their university was poor value for money. Eighty-three per cent of those students wanted more information on how their fees were being spent. Nearly nine in ten of the students surveyed said they would consider a breakdown of how their university spends its fee income to be helpful in determining whether it was good value for money.
Technological innovation has heavily influenced and transformed the payment processing sector
This translates into intense political pressure; both the current government and the opposition have vowed to lower tuition fees.
Tuition fees, therefore, are intensely politically sensitive and hugely important to a higher education institution’s cash flow. Their payment must be intensely carefully handled. By considering the new technology available in the sector, universities may find ways to make the process simpler, more transparent and safer.
When discussing the sector, the primary businesses to consider are payment platforms and those that provide them. One example is Globalpay for Students, owned by Western Union. The company has been involved in payment processing in higher education since 1995. Since then, education has become of the business’s biggest areas of interest: 30% of all Western Union’s 225 billion yearly transactions are related to it. Eight of the ten highest ranked institutions in the Times Higher Education Global University Rankings are Western Union customers. According to the company’s head of education, Dino Leo, their interests lie “very much so in the UK”.
Besides payment platforms, related businesses like UniZest are also thriving players. Peter Miles, CEO, says: “[Co-founder Chris Donnachie] had something in 2015, and he was looking for channels to market that. He thought UK students would be a good market. That’s why he got introduced to me. I had been vaguely aware of a problem international students had with trying to open an account after they arrive in the UK. That was the beginning of the idea.”
That idea has since grown into a full-fledged business, aimed at minimising the difficulty of international financial processing for foreign students in the UK. UniZest’s Aspire account uses an integrated foreign exchange service to simplify currency transfers for foreign students and their families, into and out of the UK. The service has proved so successful that an upgraded version called the UniZest account will be released in 2019.
Changes in the market
Technological innovation has heavily influenced and transformed the payment processing sector. Discussing that change, according to Leo, is “simple – the shift in consumer behaviour driven by new technology. The way people transact has been completely revolutionised in the past few years and consumer expectations about payments are evolving. In fact, last year marked the first time in British history that digital payments overtook cash. This shift in consumer behaviour is filtering into the education space.
“What this means for universities is that increasingly, students expect to be able to pay their tuition fees in their preferred method – moving away from cash or cheque payments to digital and mobile. This is especially true for students from China, where almost half of the population use mobile payments, and who make up almost a third of the international students coming to the UK. Indeed, three in five of the tuition payments we process today are made using online, through bank transfers and wires. This trend will continue to grow as every year, the new cohort of students are even more techy-savvy than previous years.”
Miles is similarly expansive. “If you kind of think about a direction of where bank accounts and current accounts are moving, there is a feeling they’re going to become more portable. You won’t be restricted to national boundaries when you open an account. There are already fintech businesses that are building the rails and the infrastructure that would allow someone to open an account and be able to use that account in different territories.”
This vision of a market transformed by fintech and made international is strongly worth considering – especially considering the growing importance of international students to university income. Compared to UK students (currently experiencing a demographic dip, limiting the number of new undergraduate students), and the decline in EU students since the 2016 Brexit vote, international students can provide a massive reward to universities that target them.
New types of payment
Money is changing, too, or ways of handling it. Many providers already accept PayPal, even if it isn’t common to use it for large payments such as fees. Are HEIs exploring taking payments in cryptocurrencies too? Ryan Frere, VP of Global Payments for Flywire, says: “I think the payment options offered going forward will be market driven. Colleges and universities will offer students and their families the options they want – depending on country, currency, the most popular methods in that region, etc. The simpler we make it for the payer, the faster and easier we make it for universities to accept and reconcile the payment.”
He adds: “Crypto is still to be determined. Right now, it’s viewed as far too risky and there just isn’t demand for it from payers.”
A recurring theme is the importance of cybersecurity in their businesses, and the sector overall. “The harsh reality is that in today’s climate, universities and colleges are more at risk than ever before,” says Leo. “Fraudsters are adopting new tactics and continuously looking for ways to circumvent security protocols. What’s imperative for universities is to be sure the people they are transacting with are in fact students, parents and agents, and not individuals with criminal intent.”
This idea of criminals masquerading as students or parents is echoed by Miles. “Cybercrime is twofold – there’s crime where our customers might be subject to some kind of hacking, then there’s the whole other area of money laundering and fraud that might come through the account. We go through the normal KYC/AML [know your customer/anti-money laundering] aspects to get the accounts open, but because all our customers are international students and have a particular spend profile, we can continue an oversight over the account to ensure they really are genuine international students.”
This caution is well-founded. According to Cybersecurity Ventures, cybercrime is due to cost the world $6tn by 2021, up from $3tn in 2015. Higher education in general is already at risk; in 2018, UK institutions were targeted twice by international cybercriminals looking for financial data. “Universities that do not adequately protect themselves risk the loss or exposure of personal student and staff data and also commercial, institutional and research data that is valuable to cyber criminals operating domestically and internationally,” says Dr John Chapman, head of Jisc’s security operation centre.
Future of the sector
As for what’s next? “It’s an incredibly exciting time to be working in the payments industry as the advent of technology coupled with shifting consumer behaviour is driving new innovations to make paying for tuition fees easier than ever before,” says Leo. “At the same time, the international student landscape is shifting with new hotspots appearing in emerging markets.
“China, for example, is rapidly closing in on the UK with 10% market share of all international students travelling to study there – the UK has 11%. Together, this is driving diversity in the sector, with a multitude of payment options available to appeal to different cultural preferences. For example, in China we see more and more students paying for their tuition fees using their mobiles, while in the UK the preferred method is online transfers, but in some places, it’s still cash.
“This complex variety of payment methods can make it difficult for universities to manage the variety of different payment methods unless they have a platform that helps to manage this complexity. We work with universities to help them save time and resource.”
Frere agrees. “As payment complexity increases, we’re seeing more and more schools involved in less and less of the payment process,” he says. “Universities do not want to be in the payments business, and they shouldn’t have to be. That’s why they come to companies like Flywire and others to manage it for them – to provide a single point of management and payer engagement from billing and payment through reconciliation; to worry about what payment options and currencies are the right ones in different countries; to provide the ability to track the payment from initiation to settlement. Institutions are looking for partners that can handle this for them.”
“It’ll be faster, easier and more transparent,” says Miles. “It will never be free, but it’ll be more transparent.”
Education payments and receivables: anywhere, anytime
Mike Massaro – CEO, Flywire
As operating costs and tuition fees rise for universities, payments are becoming a required competency for administrations. Making it easy for students to process payments and for university staff to reconcile them can have a big impact on how smoothly things run day to day.
With international students, tuition payments can be complex and costly. High FX costs, hidden fees, slow payment delivery, and poor transparency are all part of the problem. Universities can address this by partnering with solution providers that take friction and cost out of these transactions for students and families, while also making it easier for staff to reconcile.
Domestic payments have challenges too, like students with different economic needs and financial aid programs. It’s important to be able to respond to these needs – to reduce administrative costs and minimise student withdrawals for financial reasons. There are flexible self-service options available to help you set up payment plans to fit different student needs while streamlining administrative processes.
The goal should be to make the payment experience more seamless for all involved – no matter where they are. Taking uncertainty out of the process allows students to focus on learning, and staff to focus on educating.