MasterCard breaks into cross-border tuition (MA)

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Mastercard will partner with cross-border payments firm Plastiq to allow Chinese consumers to pay US university tuition and fees via credit or debit card.

Historically, paying tuition internationally is challenging, since most US institutions accept only check or electronic bank transfer (EBT), which leads to massive fees associated with currency conversion and international wire transfer. Mastercard’s partnership simplifies that.

In the process, Planet Payment, another partner, will help with currency conversion, while Plastiq will process the card payments as checks or EBT. The service will also work at any institution, because Plastiq doesn’t require school-based partnerships.

The fast-growing digital cross-border tuition market, especially in China, could be a lucrative space for Mastercard to enter.

• The US is a top destination for Chinese students. Thirty-one percent of international students in the US are from China, making it the largest source of students from abroad. That’s a massive pool for Mastercard to pull from. It could shrink considerably, however, if China UnionPay, the state-affiliated card network with a near monopoly in China, isn't compatible with Mastercard and Plastiq's platform. 
• Other firms have seen quick growth. Flywire, a company that partners with institutions to provide lower-cost processing options for cross-border tuition and university payments in a variety of countries, was on track to double its annual volume from spring 2015 to spring 2016, when it expected to hit $2 billion. Moving into such a space could help Mastercard bolster its fee revenue from a new source of consumers. And it also gives the firm the added bonus of expanding its presence in China, which could be important as the card network prepares to apply for a license to launch in the country.

Every year, migrants send hundreds of billions of dollars worth of remittances back to friends and family in their home country. And there's a massive industry that facilitates these payments — and has for more than a century.

The legacy remittance industry has been long dominated by cash, which requires physical locations where customers can hand over or pick up money. Building out those retail networks is a huge investment. It's left just a few players, called Money Transfer Operators (MTOs), controlling a bulk of the industry.

But these companies' comfortable hold on the industry is now being challenged by digital remittance startups. Digital-first remittance companies are competing on fees and usability, and capitalizing on the way people's expectations have changed with the advent of digital and mobile channels.

Evan Bakker, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on digital remittance that sizes the total remittance market, company-specific market share, digital's market share, and digital's growth at major remittance firms. It also assesses how disruptive digital startups have been by comparing their fees with market leaders, and by juxtaposing their business models with those of legacy companies.

Here are some of the key takeaways:

• Digital's share of the global remittance industry is still fairly small at 6% — but growth is extremely fast at digital-first startups and legacy companies.
• Fourteen year-old Xoom makes more revenue from electronic channels than 75 year-old MoneyGram, the second-largest remittance company in the world.
• Startups are undercutting incumbents' fees in certain corridors; however, legacy firms have matched prices in many major corridors.
• Legacy firms' businesses are already responding to the threats posed by digital by lowering fees and adjusting business strategies. However, they face lower margins if they continue to compete with startups on pricing.

In full, the report:

• Sizes the remittance market and calculates major remittance companies' market share.
• Estimates digital's share of the market vs. cash.
• Quantifies digital's impact at remittance startups and legacy firms.
• Breaks down the business models employed by each type of remittance company, and determines which ones are in a better position for growth.
• Compares transfer fees in various corridors to assess the competitiveness of each firm.
• Explores other platforms that could completely upend the industry from the outside.
• Determines how legacy remittance companies will fare in the digital age – the answer may surprise you.

To get your copy of this invaluable guide, choose one of these options:

1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of digital remittance.