Alternative payment systems can reduce the cost of college for students, add convenience, and eliminate the cost of tuition payment systems. In many ways this should be a no-brainer for CFO’s and CIO’s. Yet roughly 50% of all colleges and universities continue to offer only traditional credit card and eCheck payment options while the other half don’t accept credit card payments at all.
Reducing The Cost of College
For the 50% of institutions accepting credit cards half are eating the costly processing fees while the other half passes them on as convenience fees. This issue was highlighted in the previous posts on the Credit Card Convenience Fees in Higher Ed. Although some relief appears to be coming in a legal settlement by Visa and Mastercard to allow surcharges that will only open the door to passing the processing fees on to students.
Additionally, institutions are paying $50,000 to $150,000 a year for tuition payment software to handle the credit card transactions. All of this is just adding to the cost of college and in most cases not adding any additional convenience or value to the students.
Some schools do provide additional services through add-ons to their tuition payment software such as payment plans and some use their e-Commerce platforms.
Sure most colleges and universities allow electronic checks (E-Check) or bank transfers. But they still lack the convenience factor consumers are looking for and there is still a fee for the ACH even if it is only $3.00 it is still adding additional costs.
What are Alternative Payment Systems
Originally, alternative payment systems referred to payment systems that operated outside of the banking industry. These were consumer services that offered alternatives to credit cards, debit cards and checks for online purchases through companies such as PayPal, InterNet Cash, PayMe, and NetCash.
Today, alternative payment systems refers to methods of payments offered as options to credit card payments. Alternative payment systems began with debit cards, prepaid cards and stored value cards evolving to include bank transfers, mobile payments, and online e-Payments designed specifically for C2C, C2B and B2B forms of e-Commerce.
Alternative Payment System Providers
When most people think of alternative payment systems today PayPal is the one brand most people recognize. But many other companies have followed the PayPal model and added online payment services to their business.
Google Checkout and Amazon Flexible Payment Services (FPS) are two platforms for merchant services like PayPal that offer a complementary consumer service Google Wallet and Amazon WebPay. Dwolla, 2Checkout, MoneyBookers, Intuit, Mazooma, and Square are a few others offering online, mobile and in store alternative payment systems.
But PayPal, Google Checkout, Amazon FPS and most other providers follow the same business model as Visa, Mastercard and the other major credit card companies by charging a percentage of the transaction amount plus an interchange fee.
There are five main benefits of using PayPal, Google Checkout or Amazon FPS:
- They offer a convenience factor many consumers favor
- They have brand recognition and a reputation people trust
- They have tremendous support for developers so that integrating them can be easy
- You can still offer payment plans and e-Commerce support
- You can eliminate the tuition payment software expenses while still avoiding much of the PCI compliance issues.
Here is a comparison of some of the key providers:
|Payment system||Pricing, per transaction||Web-based shopping cart and checkout||Mobile payments (browser, in-app, and/or SMS)||Credit card support||Debit card, bank account, and/or cash funding options|
|PayPal X Platform||1.9% – 2.9% + $0.30 (Full Details)||Yes||Yes||Yes||Yes|
|Amazon Flexible Payments Service||2.9% + $0.30 (Full Details)||Yes||Yes||Yes||Yes|
|Google Checkout||2.9% + $0.30 below $3,000||Yes||Yes||Yes||Yes|
|Dwolla||$0.25 to receive money||Available in several popular shopping carts (More Info)||Yes||No||Bank transfers|
|Square||2.75% per card swipe||No||Yes||Yes||No|
|Intuit GoPayment||2.70% per card swipe||No||Yes||Yes||Debit cards|
Dwolla takes a unique and innovative approach in offering what they describe as the next generation payment network. In a nutshell Dwolla acts as an intermediary between two banks to transfer funds for payments between two parties.
Because there are no other participants in the transaction Dwolla is able to keep their processing costs to a minimum. The result, Dwolla does not charge anything for payments below $10 and only charges a flat 25 cents ($0.25) per on transactions over $10.
“Example: If you take $10,000,000 in payments via credit card, with an average price of $40, you are probably paying between 2% to 5% – $200,000 to $500,000. That same amount and average price ends up costing $62,500 with Dwolla!”
Others offering online cash payment services like Mazooma still include a 1.5% + $0.05 fee on all transactions.
The downside is that Dwolla is an alternative payment system for cash and doesn’t solve the problem for those wanting or needing to use a credit card.
Dwolla represents an opportunity to actually reduce the cost of college by lowering your overhead and eliminating convenience fees or surcharges to the students and parents.
Higher Ed SIS and ERP Vendors
Perhaps we will see partnerships emerge between Dwolla and the other alternative payment system vendors and the higher Ed SIS and ERP vendors. If Oracle, Ellucian, and the smaller vendors would offer Dwolla integration out of the box it would signal their true commitment to helping cut the cost of college.
But I am a bit cynical and very pragmatic and suspect the partnerships with the likes of CashNet and TouchNet and other tuition payment software vendors are too lucrative to make such a move. At least until the colleges and universities begin asking, or demanding support for it.
So, CIO’s and CFO’s, take an hour or two to do some research into any one or more of these options as a way of expanding services to your customers and cutting costs – yours and theirs.