Chinese students paying by purchasing cards - Part 1

This blog is provided by Tim Wilding, of ATFS. You can contact Tim via email here. If you have more than a handful of Chinese students, you are likely to be impacted by this, so please do read on and ensure this is brought to the attention of relevant managers and staff of your income teams...

We live in a period of ever-increasing card acquiring costs, but some of you may have noticed a larger than expected increase in your monthly card processing cost in October and wondered why. One notable north-east University reviewed their merchant statement and discovered hundreds of purchasing card payments – many more than usually seen.  Further investigation identified the interchange on these cards to be 2.0%, meaning they were issued outside of Europe, plus the scheme fee at a little over 1.0% - correct for an online transaction – a total of 3.03%. For those new to card processing costs, Interchange is the proportion of the transaction cost that is passed back to the card issuer and the scheme fee if for whoever is running the card on behalf of the issuer – in this case, VISA.

So, if the rates are correct, what’s the issue? To date, WPM have identified nearly 9,000 transactions across the sector, with a total value of around £126m!  The average transaction value is around £14.5k, with the largest seen at £37.5k. A rudimentary calculation shows these transactions have cost the sector more than £3.8m* before considering the processing fee – that’s the bit kept by your acquirer.  The full cost will be more – payments will also have been taken via terminals in the face-to-face environment. (*While many universities use WPM, there are some that don’t – so the total impact is likely to be even higher.)

We were able to confirm that these cards were issued in Hong Kong, by a good-sized Fintech company. Their website shows that they issue virtual multi-currency procurement cards to businesses for their employees. Armed with this info, I made contact with the five main card acquiring firms plus several other payment providers, and it’s been possible to piece the story together.

It would seem highly unlikely that this Fintech company would issue so many cards to so many individuals and it appears that a Chinese payment firm that the sector has previously had issues with (putting themselves forward as an official payment partner for Chinese students to pay UK Universities) has been issuing these cards to Chinese students or their parents. As we know, Chinese payers always look for the best deal and it’s likely the FX rate to add Sterling to these cards is very competitive; WPM have confirmed these appear to be purely Sterling transactions; i.e., there is no DCC involved – this is the process whereby the student’s currency is converted to Sterling at the time of the transaction.

So, what can be done about this? The acquirers have swung into action, discussing internally with their interchange teams and in some cases engaging with VISA. VISA are now investigating, and we believe a meeting is being sought with the aforementioned fintech company urgently, so they can explain why so many cards have potentially been issued to Chinese students (or in their name). On the face of it, scheme fee rules have been broken. Here is the relevant clause:

A further update will be provided once the outcome of the meeting is known.  In the meantime, you should look to understand the impact on your institution, so take a good look at your September and October merchant statements. Regardless of the pricing model you are charged by, you should be able to identify payments made by procurement cards, but please contact your acquirer or WPM if you need help.

For Universities that have instalment plans for fees and accommodation, it is hoped a solution can be found ahead of the next payment run – usually in January.  Blocking the BIN range so the card is declined is a possible outcome which will be covered in the next update. The BIN range is the element of the card number that identifies where the card was issued and whom by – for these cards it’s 472593.

If you have any questions/comments, please don’t hesitate to get in touch.