A China Gambit And Boom in Studying Abroad Open Big Opportunities for peerTransfer

Students from outside the United States are flooding the country to attend colleges, universities, even secondary schools, and that presents a payments problem for them and their families. Wire transfers, the typical way for foreigners to pay tuition and other fees, are cumbersome and expensive. Enter peerTransfer Corp., a 4-year-old startup that says it has solved that problem.

The Boston-based company processes payments for students and their families on behalf of institutions in 11 countries, and on Thursday it announced it has applied with the Chinese government to open an office in Shanghai to handle payments needs for students coming to China to study. “We’ve always processed payments from China, but never had a local office,” Mike Massaro, peerTransfer’s chief executive, tells Digital Transactions News. “The Shanghai office will handle incoming requests and will also help bring on new schools in China.”

As for peerTransfer’s home country, there’s already plenty of activity. Chinese students alone account for 29% of all foreign students at U.S. schools, according to figures from the U.S. Department of Homeland Security. All told, some 1.13 million foreign students were studying in the United States as of February, most of them in college-degree programs. That’s up 14% in one year and nearly 50% from 2010.

PeerTransfer lets students pay into a local account in their home currency. It pays the foreign institution in full in the institution’s home currency and quotes a foreign-exchange rate to the student that allows it to earn a spread over negotiated rates. The spread averages 1.6% across all currencies, according to Massaro, who says peerTransfer supports nearly 100 currencies. The company, which accepts bank transfers and credit cards, doesn’t levy a transaction fee, though the student’s local bank might.

That contrasts with wire transfers, which involve fees to both the sender and the receiver, as well as foreign-exchange cost. By allowing students to pay a local account, peerTransfer avoids much of this cost, Massaro says. “We built a collection network,” he says. “We need to collect money rather than send money.”

Some 720 educational institutions accept peerTransfer’s payments, with 650 of these in the U.S., including Massachusetts Institute of Technology and Cornell University. The average ticket, Massaro says, is $12,000, and this year the company will process $2 billion in tuition and other fees.

That has the company eyeing other large-dollar markets it could move into. Two that Massaro mentions as possibilities are real estate and travel. “We’ve been approached by [firms in] other markets that have cross-border payments,” he says. “Those are all great transactions for our platform.” Within a few months, he promises, “we’ll bring to market a couple of other verticals.”

PeerTransfer may have more fields to plow just within education, says Nancy Atkinson, a senior analyst at Aite Group LLC, a Boston-based payments consultancy. “It is a market [where] there is a need for” a service like peerTransfer, says Atkinson, who has used wire transfers but now uses the Xoom Corp. remittance service to send funds to a daughter studying in London. Xoom is being acquired by PayPal.

She says there’s value especially for a service that can drive down exchange fees on large-dollar transactions like tuition payments. An average spread of 1.6% over wholesale rates “would be a savings,” she says.

Also, the company may have the field to itself for a while, at least. “I don’t believe there’s any big push from the big money-transfer firms toward international student payments,” notes Atkinson, who follows the money-transfer market.

As for peerTransfer’s latest gambit, the move into China, that too is likely to pay off, Atkinson says, given the number of Chinese students studying abroad and the opportunity to open up Chinese schools to more foreign students. “That is an area of opportunity, that’s for sure,” she says.