Higher Education Payments Industry Challenges: Consumer Perspective
Lack of alternative payment options and inefficient cross-border payment and international funds transfer systems are two of the biggest challenges impacting the higher education payments industry. These challenges stem from the reluctant nature of universities to migrate from legacy systems to more advanced digital payment solutions.
Lack of Alternative Payment Options
- Today's college students are digital natives and are rapidly facilitating the transition to a cashless world. Gen Z and millennial students want higher education institutions to offer them alternative payment options.; however, these institutions are slow to change.
- A survey commissioned by Mercator Advisory Group found out that nearly all millennials own a smartphone, and 70% use it to make payments. Equally, the Gen Z cohort admits it loves banking apps, and 69% use them daily and weekly.
- Research findings show that many higher education institutions run their financial transactions on legacy systems, which they claim to be more prudent financially compared to the cost of a new setup.
- Importantly, the younger generations tend to carry less cash, which is a burden, hard to manage, and is prone to fraud and human error. Unfortunately, the failure of higher institutions to upgrade their payment options places an extra burden on students who wish to make quick mobile purchases.
- Despite the efforts of the U.S. higher education institutions to offer credit and debit payment options, research findings show that still, work needs to be done since mobile payments supported by near field communication (NFC) technology are growing in popularity.
Inefficient Cross-border Payment and International Funds Transfer System
- According to a report published by Payments Source, ineffective cross-border payment solutions, along with poor international funds transfer systems are creating complex problems for international students, including their families, and university administrators responsible for processing the funds.
- The inefficiencies result in higher transaction costs because of the complex process involved, which often includes many players facilitating the transactions. Research findings show that international students and their families don't understand the intricate process of cross-border tuition transactions until they get involved.
- Again, out-of-state tuition fees have been rising sharply in the recent past, causing more financial problems to international parents and students. For example, the annual in-state public tuition can cost, on average, $9,650, while out-of-state tuition costs as high as $24,930 annually.
- The crux of the matter is that more than half a million of the international students who come to study in the U.S. each year are left alone to handle the payment challenges, such as additional tuition, volatile forex rates, etc., without the support of their institutions.
- In 2016, about 350,000 Chinese students used Alipay on the WeChat app to make payments. Likewise, over 10,000 German students used the Sofort payment method that year, which suggests that there is a need for omnichannel payment solutions in the U.S. higher education payment industry.
- In December 2019, Flywire partnered with iSAMS to start supporting cross-border tuition transactions.
To find the two biggest challenges impacting the higher education payments industry from a consumer perspective identified above, your research team started by scouring reports on the higher education payments industry. In this regard, we focused on reports published by payment providers, educational institutions, fintech solutions vendors, and financial institutions. We then checked which challenges are repeatedly mentioned across these reports, along with those that have a greater financial impact on the students. For each report, we focused on the consumers' perspectives of the matter, along with expert opinions. Overall, using that approach, we found out that the lack of alternative payment methods and ineffective cross-border payment platforms are two of the biggest challenges impacting the higher education payments industry.