Opportunities for Electronic Payments in Higher Education
Higher education institutions have made big strides in streamlining their procurement processes. Several large universities have implemented centralized purchasing, Procure-to-Pay processes, and IT systems for spend reporting. Periodic monitoring of performance indicators and exception reports enables purchasing departments to adhere to purchasing policies. However payments to suppliers are still predominantly check-based. Adoption of electronic payment methods could be an important step towards the transformation of purchasing departments.
A closer look at the typical purchasing and payments process at universities could explain the popularity of checks. Invoices for all purchases by departments are bundled for payments. The check used for the payment of a bundle of invoices is associated with a payment form, which contains the numbers of all the invoices in the bundle. When the check is cashed, the invoice numbers and the check stub are used for reconciliation. For research-intensive departments such as medical schools, the process is further complicated by the need for associating payments with grants. Research departments purchase specialized technology solutions from suppliers who are usually unwilling to accept cards and pay swipe fees. Card payments are also discouraged for these payments due to the difficulties faced by central purchasing departments in monitoring the prices and reconciling the payments.
At many institutions, centralized purchasing is being gradually replaced by purchasing within many spend categories at the individual department level. After purchasing, the payment to suppliers is centralized while the bookkeeping is the responsibility of the individual departments. In order to enforce policies on purchasing from preferred suppliers, some universities have set up online markets that departments use to make purchases. However, due to differences between departments, these online markets do not usually contain all the products required by the departments. Therefore, out-of-marketplace purchases may be difficult to avoid.
Figure 1: Common Expense Categories
Source: Delta Cost Project at The American Institutes for Research.
To achieve success in the higher education payments market, card issuers may need to offer or further develop and promote more specialized solutions. The ideal solution would address the key needs of higher education customers and include features such as the ability to associate multiple invoices and grants with payments, set different spend controls for each department, report on spend by a variety of dimensions, and automatically reconcile payments with invoices. To keep initial implementations simple and generate favorable reviews in the market, the initial target customers would be smaller institutions with fewer departments and a lower focus on research. Marketing tactics could include presentations at education industry conferences and publishing thought-leadership materials. The market is reputed to be close knit and , therefore, a few early successes could lead to exponential growth due to word-of-mouth advertising.
The large higher education payments market presents unique challenges to the widespread adoption of electronic payments. However, the high spend potential (as shown in Figure 2) and a relatively low level of competition presents opportunities for card issuers who are willing to invest in product development and marketing.
Figure 2: Estimated Spend Opportunity for Cards in the Higher Education Market
Source: (1) Institute of Education Sciences (2) Delta Cost Project at The American Institutes for Research (3) Based on an assumed 2% of total expenditures for travel and purchasing usage. (In the late 2009 NAPCP / First Annapolis supplier acceptance survey, education survey respondents’ average p-card spend capture as a percent of annual budget was significantly higher than 2% suggesting 2% may be a conservative assumption estimate.).
For more information, please contact Balaji Viswanathan, Consultant specializing in Commercial Payments,firstname.lastname@example.org
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