New banking laws may hurt Yalie startup

Higher One, a Yalie-founded, New Haven-based financial-services company for universities and college students, is poised to go public. But if new federal banking regulations are passed, the company may reconsider.

Higher One — which processes universities’ financial aid payments to students and provides banking services for colleges and students — announced its plans to hold a $100 million initial public offering in late March. But in its filing with the Securities and Exchange Commission, the company, which did not specify when it intends to go public, indicated the shift may not occur at all if new federal banking regulations restrict the operations of financial intermediaries.

According to the company’s SEC filing, submitted March 24, Higher One plans to list its stock on the Nasdaq Global Select Market. The filing does not specify when the IPO will occur or what the expected price of Higher One’s shares is. But according to a note the company submitted with the SEC filing, company insiders will likely own most of Higher One’s stock. Mark Volchek ’00 GRD ’00, Higher One’s chairman and chief financial officer, declined to comment on the IPO filing because it is still under review.

Among other things, Higher One helps universities distribute refund disbursements to students, helps them automate campus payment services and provides students with money management tools, such as budget calculators and bank text message alerts.

But consumer protection measures under discussion as part of Congress’ financial reform efforts could put Higher One’s future revenue stream in jeopardy, according to the company’s Initial public offering filing. According to its 2009 SEC filing, in 2009 Higher One had $75.5 million total revenue, 88 percent of which was generated by ATM and other banking service fees. Because convenience fees on ATM machines generated the majority of Higher One’s revenue, any legislation Congress passes to regulate what fees ATMs can charge would likely diminish the viability of Higher One’s business model.

The company’s IPO filing also lists the federal legislation passed in March that will restructure student loan business as another factor threatening the possibility that the company will successfully go public. If the legislation reduces or eliminates student loan service providers’ role in the financial services industry, Higher One’s future prospects could be adversely impacted, according to the company’s SEC filing.

Higher One has customers at universities in 46 states. But not all higher education institutions use intermediaries like Higher One to distribute financial aid payments or loans to students. At Yale, private banks like Higher One have no role in distributing student aid, said Caesar Storlazzi, director of student financial services. Storlazzi said he was unable to comment specifically on Higher One because he was not familiar with the company.

Volchek, Miles Lasater ’01 and Sean Glass ’03 founded Higher One in early 2000 after raising more than $620,000 from investors, and Volchek and Lasater, Higher One’s chief operations officer, are still actively involved in the company’s management. The company has grown steadily since 2000 and currently has 325 employees.

According to Higher One’s SEC filing, the company plans to use proceeds from the IPO to expand its client base, increase the number of account users, introduce new financial service products and pursue partnerships and acquisitions. It will also use some of the proceeds to pay off debt due at the end of 2010.

Goldman Sachs, UBS Investment Bank, Piper Jaffray, and Raymond James and William Blair and Company are underwriting Higher One’s IPO.

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