Click here to see this week’s breakdown of investments
There’s a group of college students whose biggest problem isn’t actually paying for tuition, it’s getting the funds they have for that tuition to the institution of higher learning that they’ll attend for two, four (or more) years. Those are students who live in one country and have chosen to attend school in another.
And that’s actually a problem for a lot more students than one might think, Nearly 900K international students made a decision to come to the United States to study during the 2013-14 academic year. And tens of thousands made a decision to study in the U.K. or Europe or Australia over that same time period. But that’s precisely the problem the peerTransfer stepped-up to solve in 2009. peerTransfer is an efficient, cost effective and transparent alternative to the existing friction-laden international funds transfer services, including bank wire. And yesterday, they announced that they have raised another $22 million dollars so that they can help even more students solve that problem.
As with a lot of innovators and their inspiration, that problem is not hypothetical. CEO Mike Massaro told MPD CEO Karen Webster in an interview shortly before their capital raise was announced, that peerTransfer’s founder, Iker Marcaide, was inspired to create after attempting to pay his tuition at MIT’s Sloane School. His experience, as Massaro described, went badly awry. Two weeks of searching for a payment that was made promptly and short, given a variety of fees that were totally opaque, was all the motivation Marcaide needed to design an alternative.
“We like to say the money got lost in the Atlantic Ocean somewhere,” said Massaro. “In reality it was in MIT’s bank account the entire time, it just wasn’t reconciled properly – they didn’t know it was his money and it wasn’t the right amount due to all the intermediary bank fees along the way. [Marcaide] came out of that whole experience saying there’s got to be a better way.”
Founded in 2009 out of MIT, peerTransfer was that solution. In its first year, the company was a first runner-up in MIT’s $100K back (an annual entrepreneurs’ competition), and was one of 110 MassChallenge finalists.
That resulted in $1.1M in funding from in a round led by Spark Capital. Six years later, yesterday (Jan. 13) the company announced yet another two big milestones – closing a $22 million round led by Bain Capital Ventures and achieving profitability.
Massaro told Webster that these newest developments now set the stage for expansion of what isn’t just an tuition payments platform, but an international payments platform that will give incumbents a run for their money, literally.
“It just kind of sets the company up for the next stage of strategic growth and to get global expansion growing,” commented Massaro. “I think we are in a position pretty unique in the payments space right now. This category of optimized international payments is just going to continue to emerge.”
And nowhere is that more evident than in the international education market that peerTranfer serves. International student attendance increased 8 percent between 2013 and 2014 and has almost doubled since 1993.
As the number of students from around the world has been increasing nearly exponentially, all sides of the transaction are suffering according to Massaro.
Ironically, what isn’t a problem is access to the money to send these students to school – it’s access to an efficient way for that money to get to the right institution in a cost effective and timely manner. On the institution’s side, given the deluge of wires coming into their bank accounts from around the world, and the complexities associated with reconciling which payments belong to which students, colleges and universities struggle to keep up.
Not only do they get their money quickly, but peerTransfer makes it easy for that payment to be easily matched to the right student’s account.
“It wasn’t just the students and their families having the issues, it was the institutions as well.” Massaro told Webster. “It’s a perfect storm, really. Our experience is that we hit the market perfectly as the growth of international students over the last eight years or so as exploded. So there’s this huge influx of international wires, and “educational institutions getting overwhelmed [with] the wires they have.”
But what peerTransfer isn’t is an alternative payments method – it’s simply an enabling platform that allows senders and receivers to use their preferred method of payment to make a payment – in this case a tuition payment from a student in one country to an institution in another.
“Consumers want convenience. If they can pay $30K on their Visa or MasterCard they want to be able to do it. If they want to use Alipay or use a foreign credit card – they want that flexibility and we’re the first platform to really give people choice among all those payment methods.”
What consumers see when they make a tuition payment is a variety of payment methods that they can use to enable their payment via peerTransfer’s platform – all presented with the fees fully disclosed. Students and/or their families have the ability to choose which method of payment is right for them and they’ll know exactly how much it will cost – up front. Then, how the money gets moved from student to university is where peerTransfer takes over.
“The can see different payment methods and different price points. They’re never at the point where they don’t know. If they used a foreign card today on the domestic card rails you wouldn’t know how many euros hit your card until you saw your statement,” Massaro explained to Webster.
peerTransfer’s fees are about 1.5 percent (or roughly half of what is typically associated with a bank transfer), but, those fees are not mysterious and do not change. In fact, once a customer begins a transaction with peerTransfer, they essentially lock in the exchange rate that the payment started under.
Perhaps one of peerTransfer’s biggest barriers to entry is its business model – the platform economics, if you will, that have contributed to its ignition and now, profitability. peerTransfer is free to the institution and makes its money on the FX fees associated with the transactions.
peerTransfer decides on a per currency, per transaction basis how they’ll hedge a transaction and take on the currency risk. And that one small decision – who pays and who subsidizes its platform – has had a huge impact on its business. That business model and value proposition to the institution has motivated many colleges and universities to promote peerTransfer as the preferred method of payment to its students. And more and more students are using it to make those payments. And, not surprisingly, more and more institutions want to sign on – peerTransfer is adding about 50 new upper educational institutions per quarter.
“A lot of companies that start in a straight cross border money transmission space are going to go after that sender of funds but there’s huge acquisition costs,” Massaro explained. “They have to acquire these consumers, they have to get them on relatively low dollar amount transmissions and they’re a bit fickle – if they don’t have to send money every month, they don’t come back. Part of this is the space we targeted but you get this recurring basis of users coming back.”
Like all new ventures, there’ve been surprises along the way. One of them is just how much value is being added to the senders’ side of his platform.
“When people pay bills, they typically aren’t very thankful to those who are helping pay the bill – in this situation it’s very different,” Massaro remarked.
So what’s next for peerTransfer? Growth and expansion into more marketplaces around the world, as well as opportunities to serve the rather unique customer base that has become a fan of its platform. The majority of those who use peerTransfer’s money transfer platform are financially secure enough to send a son or daughter abroad to school – and that is a demographic that offers a number of additional opportunities to explore.
The company is also at least peeking over the hedge into opportunities in different verticals as well.
“We’ve been approached by all kinds of institutions from real estate to B2B companies that bill cross-border and they have no convenient way but bank wire to receive those funds. So this combination of a platform to make it convenient but also a customer service element to make it easy,” he said.
Massaro, however, was quick to note that peerTransfer’s “sweet spot” has been in the educational vertical, and it plans to continue, though expand the purview of the services it offers. For instance, universities send students abroad to study for a semester, or operate executive education programs that host international executives. All of those are use cases that involve the same basic friction – senders in one country who need to make a payment for services to an institution located in another.
“I think you can really look at the broad definition of education. That’s what’s so exciting, our current market continues to grow quickly. It’s already quite large, but there are many ways to expand it.”
It is not easy being an international student for a variety of reasons. peerTransfer cannot solve all of them, but this enterprising payment platform has found a way to make getting a payment to that institution easier and more efficient for all involved.
Here’s what happened in the first week of the year (and some more investments that we missed from the last week of December):
The Big Takeaways for Payments and Commerce
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More