By Dennis Chang, entrepreneur creating the future of corporate payment infrastructure with RoadFlex.
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The financial services sector has experienced massive innovation in the last decade as fintech solutions disrupt traditional companies. This has been enabled by other technologies like machine learning, mobile and IoT across the globe. Within fintech, the corporate payments sector has been making headway. The U.S. corporate payments market was $1.4 trillion in size in 2021.
In the last few years, businesses have started adopting corporate payment solutions as it helps them more easily manage their expenses. This lets organizations get better visibility and management of their cash flow. New payment models now offer fast and cheap processing options, leading to fast adoption of these new methods. To support this new wave of innovation, venture funding for fintech has been at an all-time high. Fintech companies raised $44.4 billion in VC funding throughout 2020. In 2021, fintech VC funding hit $91.5 billion in the first three quarters alone, with fintech VC funding nearly tripling from just the year before by the end of 2021.
This is because new digital finance solutions are spearheading the long-overdue disruption of big banks by removing layers within legacy payment value chains and adding new infrastructure to cater to modern transactional needs. Still, the road ahead for new credit card startups isn’t easy. Credit cards are a mature, well-established market and the big banks usually already offer a wide variety of cards. Many of the traditional banks have even adopted new B2B payment methods such as buy-now-pay-later options and invested heavily in new digital offerings.
The Evolution Of Corporate Spend Solutions
There have been several waves of corporate spending solutions, and the rate of innovation has increased significantly in the last few years.
Wave 1 was composed of companies such as Divvy, Brex and Ramp. They offer corporate credit cards and give away their cards for free and make money primarily from interchange. As they have visibility over the cash flow of their clients, they have started to offer new financial products to their customers, such as lending and insurance.
Currently, finance teams still have the issue that they must manage multiple siloed financial tools to a single spend management platform to get full visibility into their corporate non-payroll spend. They still spend a big chunk of their time reconciling data from a wide range of sources, including billing tools, customers, suppliers, ERPs, etc. As a result, this wave of corporate payment solutions was not enough.
Wave 2 is composed of companies such as Airbase, Rho and Mesh, which are relatively newer players that emerged to partner with businesses. They are at the intersection of spend management and corporate cards but focus more on the software layer value proposition instead. This includes real-time visibility for corporate finance teams such as streamlining payments across different departmental processes, automating AR/AP and bill pay and spend forecasts.
Due to the maturity of card-issuing platforms nowadays, corporate cards have become commoditized. Newer corporate spend solutions are focusing more on workflow-driven software products that deeply engrain into the end users' workflows. Newer solutions will automate many of the financial workflows by seemingly integrating multiple data sources and connecting with corporate decision makers. We have started seeing companies breaking down the barriers between different stacks for finance teams. Solutions are integrating spend management with payroll, ERP, AP/AR, equity management and bookkeeping into one. Business customers will look to adopt these new solutions, instead of continuing to use several disparate solutions to manage each part of an organization’s financial aspects.
The Future Looks Bright
So, what will the next wave of corporate spend solutions look like? At this moment, even though this market is already quite saturated, the majority of businesses of all sizes still remain underbanked. This doesn’t mean businesses don’t have access to credit, but instead, it means that existing solutions still don’t fully address all their financial needs.
Some new capabilities we’re already seeing being developed by some of the players include:
1. More robust and real-time insights into finances and transactions.
2. Offering of alternatives to expenses, along with ratings and reviews of each service/product that comes highly recommended.
3. Suggestions on products that the organization might need to use based on current needs.
4. Spend forecasts based on past transactions and current company needs.
Most entrepreneurs I’ve spoken to (myself included) don’t want to spend their time managing finances for their companies, but instead, focus more on product development and growth. We still spend a very significant portion of our day-to-day lives managing financial and operational aspects of the business as these workflows haven’t been fully automated at this point. I look forward to that day when there’s an end-to-end solution that takes care of it.
