Several key corporate
travel and expense elements, such as booking, trip management and expense
reporting, have grown steadily more integrated in recent years, with providers offering
a combination of those services under one roof.
As the historical barriers have
blurred, stakeholders from senior executives to travel managers to individual travellers
have reaped the benefits of moving from a piecemeal approach toward a more
connected model.
But one bedrock piece of the corporate T&E ecosystem, payment,
has remained stubbornly apart, still largely siloed as a separate service provided
by a traditional bank.
However, a small but growing number of providers has
recently begun offering integrated payment and expense management under a
single umbrella, touting the combination as the most eff ective way to finally
bring payments to the party, in turn offering corporate clients better spending
controls, improved data and operational efficiencies.
A natural partnership
Unified payment cards and expense management systems offer several advantages over a
non-linked model, in which an outside card programme must be grafted to a
company’s expense tool, proponents note.
Chief among those benefits is greater
control over spending, with integrated services enabling managers to set transaction
and budgeting parameters for specific cards. Those criteria can be as broad as
overall spending limits on given cards for a certain period of time, or as fi
ne as barring purchases from a particular merchant category code, or even a
specific vendor. Approval settings can be combined for even more granular
control, such as allowing a card to be used to make a ride-hailing purchase
only after a specific time of day, and only up to a certain price.
Traditional
corporate cards typically don’t offer such controls, instead leaving it up to
managers to set and communicate policies and subsequently catch unapproved expenses
during the expense reporting process.
“If management decides they need to pivot
a travel or expense policy, that often gets communicated in an email or a
policy change in the expense management system, but the policy change doesn’t
get effectively enacted unless they’ve got the ability to put controls on the
card itself,” says Eric Friedrichsen, CEO of Emburse.
Formed from the 2019
merger of Certify and Chrome River, the expense conglomerate signalled its
emphasis on payments when it rebranded in January 2020 as Emburse, the name of
a startup payment card provider that was acquired in July 2019. Soon after the rebranding,
Emburse began rolling out a companion payment card across its six expense
brands, starting with Abacus, which added the Emburse Card in February.
Along
with increasing compliance with spending policies, integrating can also make
expense tracking and reconciliation itself more efficient by enabling card purchase
details to flow directly to a companion expense management system. That
obviates the traditional cyclical process of tracking down receipts, approving and
reimbursing reports and paying a monthly invoice to a card-issuing bank.
Instead, companies can get ongoing, real-time visibility into their cardholders’
spending.
“Processing expense reports and reconciling corporate card statements
creates an incredible amount of work every month for accounting and finance
teams,” says Naveen Singh, CEO of Center, the provider of a recently launched integrated
system featuring a Visa-branded corporate debit card with a companion expense management
tool. “One of our goals in designing a new approach to managing expenses was to
drastically reduce the time required to complete routine operational tasks.”
That’s
music to the ears of many buyers, who cite the inefficient use of time and manual
labour required to manage approvals and reconcile expense as a major pain
point, according to Karoline Mayr, founder and principal consultant at Get Travel
Solutions. “Has anyone actually asked ourselves why we keep using corporate
cards, use monthly statements, reconcile, look for receipts and go through this
very messy process every month?” asks Mayr, who has extensive experience as a
travel buyer.
“In almost every company I have worked at in the capacity of a
global travel manager, the month-end close is very stressful and painful,” says
Mayr. “At one company, we were expected to close the books two days after the
month end. This puts a great strain on the entire team, especially finance ops,
accounting, audit and travel.”
Expensify founder and CEO David Barrett agrees,
declaring bluntly that “reconciliation is a nightmare.” Expensify, which had
offered an expense management service for more than a decade, launched its own
companion payment card in October 2019. Along with automatically routing
purchases to the expense tool, the Expensify Card features daily settlement, which
allows client companies to better track outstanding costs and avoid unwelcome
end-of-month surprises.
For Expensify, breaking the mould of the monthly reconciliation
model simply was a matter of reimagining ingrained processes that took hold in
a less-technologically advanced era, Barrett says.
“Again and again when we try
to explain the necessity and universality of the monthly billing cycle, we keep
coming back to a very simple reason: habit,” says Barrett.
“It is a strongly
ingrained habit that originates from the days of mailing a physical cheque, a
process that feels infeasible to do more often than monthly,” Barrett adds.
The
time could be right
Given the potential benefits of combining payment and expense
services, why have suppliers only recently begun to bring such offerings to
light?
One key factor is the availability of payment card issuance services
based on application programming interfaces from such providers as Stripe and
Marqeta, which have made it much easier and faster for corporates to issue their
own physical and virtual payment card products.
That process, which traditionally
necessitated lengthy development time, complex agreements and long-term contracts,
now can be accomplished via several lines of code, Emburse’s Friedrichsen says.
“The advent of these services have helped make card issuing a lot easier,” says
Friedrichsen. “It’s much simpler and quicker for organisations to issue cards
than they could have in the past, and it allows us to innovate much more
quickly as far as our services.”
But those advances wouldn’t have been enough
to truly get the ball rolling without another key element: banks’ willingness to
cede their traditional role alone at the centre of a payment product, and
instead partner with providers in a smaller but still crucial role.
“The reason
why this model wasn’t possible before is that banks had to evolve their business
goals effectively to support this new vision, where, while the card is important,
the software integration with the card is what makes the card valuable,” notes
Center’s Singh.
“Most banks are great financial service companies, but they’re
not great software companies,” Singh continues. “So banks had to learn to partner
with tech providers rather than compete with them. There’s still lots of work
banks need to do to enable those tech providers to issue cards, and there’s
lots of value a bank still adds, but that’s by playing more of a platform
role.”
Friedrichsen agrees, noting that Emburse seeks to “partner with financial
institutions, not compete with them.” In addition to issuing cards, the company
relies on banks to float financing for cards set up under a credit card model,
he adds.
For expense providers, adding a payment card isn’t just a matter of
offering a useful companion product – it also has the potential to open up a significant
new revenue stream in the form of the “swipe fees” merchants pay whenever they accept
a purchase made on the card. Those fees typically are shared between issuing banks
and payment networks such as Visa and Mastercard, but corporate payment card providers
can arrange to keep a percentage as well, justifying their cut by the overall
increase in purchase volume driven by those providers’ cards.
Swipe fee revenue
makes providers less reliant on subscription and licensing fees from client
companies, enabling revenue models where a client is charged less depending on the
overall purchase volume from their cards – or isn’t even charged at all.
Emburse
offers just such a pricing model, according to Friedrichsen, while Singh says
Center earns the “vast majority” of its revenue from swipe fees. In some cases,
for particularly large or high-spend organisations, Center may even essentially
pay the client to use its card, in the form of cash-back rebates, Singh adds.
A
scalable solution?
New market entrants offering a combined card and expense service
might have a relatively easy time convincing a start-up or smaller business of
their value proposition. But it will likely be a much taller task to carve out
market share among major corporate and enterprise-level clients, most of which
have entrenched relationships with legacy corporate card providers.
“Most large
global companies have preferred relationships with corporate card issuers, such
as American Express or Citibank, that can provide them coverage across markets,
higher global volume-based rebates and enhanced data for reconciliation,” says
BCD Travel vice president of payment strategy and products Ajay Singh.
Despite
the difficulty of penetrating the major corporate market, some niche cases
could serve as potential footholds for those emerging combined providers, Ajay
Singh notes.
“Many large corporate clients are exploring integrated travel,
card and expense solutions for non-employee travel or for emerging countries where
they don’t want to issue a corporate card to employees, or where the employees
may not have a personal card,” says BCD’s Singh.
It was with just that use case
in mind that Emburse recently launched Reach, which works with the Emburse Card
to enable job candidates, external consultants and other nonemployees to pay
for flights, hotels and other expenses without having to front their own funds
and wait for reimbursement.
While Center currently is focused on the small and midsize
business segment, Naveen Singh sees potential in scaling up to serve larger clients
and is undaunted by the challenges inherent in doing so.
“If you think about
goals and trends affecting the enterprise segment, they’re the same as
midmarket and small business customers. They have the same needs as far as spending
controls and operating efficiencies,” Singh observes.
Emburse, too, is starting
by targeting smaller companies, but plans to serve bigger clients, with
Friedrichsen calling large corporates “a critical part of our market”.
While
all-in-one payment and expense providers likely won’t make a major dent at the enterprise
level, their value proposition likely will have a ripple effect throughout
market segments, predicts BCD’s Singh.
“Most technology disruptions start small
and grow over time, and many incumbent leaders are able to benefit from it and create
additional value,” says BCD’s Singh. “Every service provider, small or large,
has to continue innovating, piloting and launching new solutions for the benefit
of the client.”