Fintechs guarantee tuition payment to schools – 07/25/2023 – Tech

Businessman Rafael Matsudo, 38, managed the Le Petit Nicolá school, in Mariporã (SP), under the pressure of a 15% default rate on monthly fees. To have more cash predictability, the solution he found was to hire the services of a specialized startup.

Paying a fee of 3.5% of the total monthly fees, he began to receive the full amount guaranteed every month, which allowed the business to breathe financially.

The situation experienced by Matsudo helps to explain a growing market in Brazil. Faced with a high default scenario, fintechs focused on the education sector have been gaining space with financial solutions for schools.

In the case of the entrepreneur, the contracted startup was Educbank, which is one of the main ones in this segment, alongside names like Isaac and Sponte.

Although he recognizes that the amount to be paid over the 20-year contract is high, Matsudo does not regret the decision. “The price is worth it for the stability. It’s a service that no one else offers,” he says.

He claims that, before opting for the service, he tried to get credit via Pronampe (National Support Program for Microenterprises and Small Businesses), but the banks required financial transactions of R$ 1 million per year.

The proposal to guarantee enrollment also makes sense for fintechs, as parents tend to pay the amounts due late to re-enroll their children in the next school year. Throughout the contract period, schools need to deliver all services to the student, in order to comply with Brazilian legislation.

To grant credit to the school, Educbank assesses the school’s financial situation, student dropout, teacher turnover, reputation and academic quality. This data is processed via artificial intelligence to generate a note, which determines the fee to be charged. The educational institution also needs to make an initial investment.

In addition to credit, these fintechs also offer guidance to reduce defaults, but the level of intervention in management varies from company to company.

Educbank, for example, offers guidance. Competitor Isaac already has an application for billing. Sponte outsources Educbank’s work to guarantee payment only.

Owners of private schools interviewed by the report say they accept the proposal because the lack of predictability of the resulting cash is one of the main reasons for business failure in the area.

The owner of Petit Nicolá, for example, says that he considers it an advantage to receive the total amounts every 5th. “Before, there were fathers who asked to pay on the 10th, the 15th, the 20th or the 25th. The school, then, ran the risk of suffering from labor causes.

Matsudo says he has dealt with late payments from 50% of his clients. The solution was to increase the price of monthly fees from R$800 to R$1,300 and focus on higher-income customers. The school’s infrastructure supported the movement — it was the old building of a Pueri Domus school — a luxury franchise of the SEB group.

“I lost 70 or 80 students who paid me in 2019, but I managed to leverage it and put it to work”, he says. At the time, the school had 180 students in an area of ​​8,000 m², of which 1,600 m² were built.

The unit currently has two offices in Mariporã, in the Serra da Cantareira part of São Paulo. One, in the center of the city, which serves 50 kindergarten and elementary school students from classes B, C and D, with monthly fees between R$500 and R$600.

Christopher Morais, business director at Sponte, a fintech focused on education, assesses that Matsudo’s choice makes sense, as those responsible with a larger family budget find it easier with bills. “Low-income parents make a sacrifice to send their child to private school and, in some situations, have to prioritize paying the electricity bill or a supermarket purchase.”

A Sponte survey carried out with 3,000 educational institutions corroborate the report of private school administrators. In 2022, 24% of parents delayed payment by at least 30 days or canceled the transaction 30 days after the installments were due. The numbers, however, are below the records in higher education institutions: 30.2%.

Data from the latest edition of the school census, carried out by Inep (National Institute of Educational Studies and Research Anísio Teixeira), show that one in every 42 private schools closed its doors in 2022 – there were 1,076. In 2020 and 2021, the first two years of the Covid-19 pandemic, the result had been even worse, with 2,466 private educational establishments closed.

From the moment they start monitoring the management of their clients, fintechs Educbank and Isaac also offer credit to school owners. Matsudo, for example, borrowed money to open a new headquarters for Le Petit Nicolá, in Greater São Paulo.

The idea was to invest in a unit in the North Zone of the capital, but Educbank identified that there were few children in the region and guided them through the ABC Paulista region.

Educbank was a pioneer in this market, which started in Brazil in 2020. Since then, more than BRL 1 billion has been invested in the area. In 2023, finetech alone plans to transact more than BRL 1 billion in payments.

Approaches change with each company. Isaac, for example, keeps away from the school’s management and bets on a management platform, which works as a real-time business report.

“We give schools complete autonomy. On the platform itself, the maintainer can choose to give a discount to a parent and this already changes the charge at the time”, says David Peixoto, co-founder of the startup.

The maintainer of the early childhood education network Eklod, from Brasilia, Thiago Almeida, says that he did not face major problems of default before joining Isaac. However, he claims that the application saves the school time with technical-administrative work and allows his team to focus on pedagogical aspects.

In October last year, the education giant Arco bought Isaac for US$ 150 million (R$ 741.2 million). Fintech makes payments today at more than a thousand schools — from the Arco network and from other sources.

Sponte, in addition to intermediating Educbank services, also offers consulting services. It recommends, for example, that its customers suggest that parents choose recurring payments, such as streaming subscriptions such as Netflix and Spotify. According to her, this reduces defaults, as the bank bills automatically.