School Is In Session
Online Payments Increasingly Important, Challenging for Colleges and Universities
By Joe Bush, CardNotPresent.com
Southeast Missouri University announced in late January that beginning May 1 it will accept credit cards for online payments with a 2.5 percent service fee.
In a world gone wired, from home-based computers to device-driven Web access and applications for everything, and a generation that can’t remember a world before the Internet, it makes sense that higher education has moved student payments of tuition and fees from standing in line at the bursar’s office to entering payment-card information at a payment portal.
Southeast Missouri University joins schools like the University of North Florida in Jacksonville, Fla., and Wright State University in Dayton, Ohio, which have taken online payments for years. Both use TouchNet Information Systems, recently acquired by processor Heartland Payment Systems, to process the transactions. TouchNet develops commerce automation software for higher education.
Online Payments Benefit Student and Institution
Steven Sherbet, university bursar and directory of treasury services at Wright State, says being able to take tuition and fee payments online undoubtedly is convenient for the school’s students, but that is not the main benefit.
“We’ve been able to, over time, save money because we don’t need as much staff to process physical payments,” says Sherbet. “In the past we used to generate bills and mail them out in the mail, we no longer have to purchase paper and the postage. It’s all done electronically.”
The school began accepting online payments just after the turn of the century using a system developed largely in house, with mainframe computers and programs written in cobal. It evolved to an enterprise resource planning (ERP) system designed specifically for colleges and universities, then decided to go with a third-party vendor in 2006 when it needed e-commerce capabilities.
“We wanted as much integration with our banner ERP system as possible so that when students would go out to the Website and they would look at their student charges they would see that activity in real time, not some type of static environment delayed by a day or a week,” says Sherbet.
“Real-time information available, make payments in real time, post automatically to ERP system; [so we instituted a] solution at that time that met those criteria along with the necessary security and infrastructure to make those payments secure.”
Security of course is the highest priority, and Sherbet says there was a choice to be made between storing sensitive information on Wright State servers or TouchNet servers and the school chose the latter not only so it didn’t have to store the information, but so it didn’t have to maintain the infrastructure necessary for secure storage.
Scott Bennett, associate vice president for administration and finance at the University of North Florida, says security above all is what he looked for and needs on an ongoing basis from an online payments services vendor. Bennett says his school has been taking online payments for a decade and estimates 80 percent of UNF’s students make online payments.
“[Evaluating payment processors] is no different than evaluating any other type of vendor relationship—you’ve got your functional requirements and specs and at the bare bones minimum, especially from a payments perspective. If they can’t provide security and ensure they are PCI certified and everything that comes with that, it’s a no-go from the start,” says Bennett, who adds, “We have to have a vendor that certainly recognizes convenience fees as a function.”
Will Students Pay for Convenience?
Convenience fees or service fees are necessary to offset interchange and other transaction fees charged by merchant banks that can make accepting credit-card payments untenable for schools. If students want to use credit cards to take advantage of rewards, they must accept fees of about 2.5 percent per transaction.
“Some schools do that to make it more cost effective rather than say, ‘We don’t take card payments,’ because in today’s world you really have to take card payments,” says Heather Richmond, director of marketing and product management for TouchNet.
Richmond says payments with debit cards are rising as well, as the transaction fee as set by the Durbin legislation is capped at 22 cents per transaction, much cheaper than a 2 percent charge on a $10,000 payment. Sherbet says Wright State switched to a convenience-fee model when merchant fees became too expensive.
“There was a dramatic change in behavior, where the consumer, instead of paying by credit card, they paid by eChecks,” says Sherbet. “The convenience fee model is why the ratio reversed.”
Sherbet says before the school instituted the convenience fee, set by TouchNet to account for all the costs of payment card acceptance, 70 percent of payments were made by credit card and the rest by eCheck. Sherbet says the switch added to the savings the school was already enjoying from eliminating staff and postage and paper costs. The school saved $450,000 in 2006, the first year of the switch from to charging convenience fees.
“Because of our need to be efficient and redirect our fees elsewhere, many of the public institutions have moved to the convenience-fee model to glean those savings because those funds can be redirected elsewhere to help support our educational mission as opposed to paying large amounts to banking partners,” says Sherbet.
Bennett says the convenience fee is not a hard sell.
“In today’s world it’s much more common in any type of governmental payment,” he says. “Governments and non-profits don’t eat that [merchant fee] anymore. People are used to seeing that. You pay for your driver’s license, you’re used to seeing that additional $3 charge if you’re not paying with eChecks. Ten years ago it was a communication challenge, but today not so much.”
Peter Michell, vice president for finance at St. Mary’s College in Moraga, Calif., says a recent survey of his school’s peer group of private non-profit colleges and universities on the West Coast showed that the vast majority do not accept credit-card payments because of the high transaction fees. The typically higher tuition at private schools, especially those like St. Mary’s that does not offer many part-time options, is a factor says Michell.
“Some private institutions that are not in our peer group have more offerings for part-time and adult students, and these types of private institutions would be more likely to accept credit-card payments as the transaction amounts are smaller,” he says. “Here’s an analogy; you can buy new car parts with a credit card, but you cannot buy a new car with a credit card.”
Security a Major Concern
Jeff Durfee, director of IT networking at UNF, says there are differences between retail or typical corporate use of payments platforms and that of higher education. For instance, he says, computer labs are open for use by all constituents and of UNF’s wireless network portions are secured for internal use. He says guest networks are not prevalent in corporate America.
“We face a lot of the same pressures,” he says. “The challenge for universities has always been to balance open access to things with the need to secure things for security reasons and compliance reasons. And we walk that tightrope like any higher ed institution does.
“Portions of universities are open environments and that presents its own set of challenges for people who want to do bad things on the network or gain a foothold. It’s a little different than a corporate environment where you just lock the machines down. We still take a lot of the same due diligence measures and encounter a lot of the same challenges a corporate environment would.”
Sherbet says in addition to cost savings, Wright State has benefited from changes to its approach to finance administration.
“We’re lean and efficient,” says Sherbet. “The focus changes from being transactional to analytical. We’re working behind the scenes pulling data from both our processor and our banner ERP and reconciling that activity to make sure everything’s posted correctly and that there aren’t any system issues. It’s truly changed how we do business.”