Managing expenses can be a stressful and time-consuming process for both employers and employees alike – but perhaps not for much longer. Financial services innovators around the world are making great strides in developing solutions that overcome the challenge of controlling employee spending for businesses large and small.
And platforms are going way beyond merely digitising staff reimbursements to deliver an ever-expanding set of business-beneficial functionality, as Anupam Majumdar, Principal at Flagship Advisory Partners, explains in this fascinating and insightful interview with Marqeta.
What are the key main use cases that we’re seeing and expect expense management from a b2b perspective.
Traditionally, with employee expense management at large companies, there are so many departments and software packages involved that it becomes a major source of friction. A likely consequence of this is that organisations are unable to get a uniform view of the total company spend.
There is a lot of leakage, for example, employees may actually overspend or not be able to claim the right amounts because they’re using personal cards instead of company-issued corporate cards. However, these issues are being addressed today by spend management fintech players, who are creating uniform platforms for managing workflows, administering spend policies, managing flawed policies, and then offering fintech products for employees to actually make the purchases.
To give you an example, Spendesk, one of the leading European spend management fintechs, offers a software suite that could replace all of a business’s departmental workflow software using SaaS, and they would offer employer branded cards which could be physical or virtual.
And that is powerful because as an organisation, it’s possible to get everything from one platform, providing a single source and 100% control over employee spend.
Employees are happy because at the end of the day, they’re getting the right form factors to make purchases, and they’re able to claim those expenses in real time. The key use cases we’re seeing today in this space are predominantly modular commercial fintech cards, which allow an employee to make purchases while employers control how much spend a particular employee is offered. This can be administered for spend at a vendor, department or even a team level. We also see expansion for employee spend using a line of credit.
These kinds of innovations are creating a lot of interest for small businesses and mid-market players who typically tend to be underserved in this domain.
Can you tell us a bit more about the leakages companies risk under a legacy multi-department expense management system please?
So, each of these systems are maintained by different departments. If you’re a human resources department it’s likely that you’re not really concerned about procurement or expense workflows. All you’re focussed on is the employee actually spending in a way that doesn’t hit your human resources policies. Similarly, as a procurement department, you’re focussed on vendor invoicing for the right amount. And as a spend management department you care that the employee is spending only on approved items. So, these interdepartmental workflows are fragmented, and that creates room for errors. And sometimes the departments do not talk to each other.
Yes, there might be manual workflows like emails, or even discussions, but that leads to a lot of gaps and difficulties in meeting policy requirements, for example, ensuring that the employee knows how much to spend. Employees can also be at risk of fraud when making a payment. For instance, if you’re making a payment with your personal card and you have insufficient funds, you might not actually get the transaction through, or if you might come under fraudulent attacks or be hit by chargeback policies. Typically, the employee has to meet those pain points themselves and that creates a lot of friction, both for the employees as well as for the employers.
What are the key trends in expense management right now?
There are three trends in my mind. The first is the broader integration of fintech propositions with expense management SaaS. Looking at the largest SaaS platforms, like SAP Concur or TripActions, they don’t necessarily offer a fintech proposition for employers to monitor how much spend is going through. They are typically decoupled, and corporate card issuers like Amex would have integrations with these platforms, so that companies could reconcile employees’ spending. But what it actually misses here is real-time spend configuration, real-time dual management and a real-time overview of how much the employee is spending.
Fintechs have spotted this and we’re now seeing a tighter integration of fintech propositions with SaaS providers.
Any one of the top fintech spend management players like Payhawk, Pleo and Spendesk, they’re able to integrate into one proposition.
The second trend I’m seeing is most of these players became big by serving small business needs. If you’re a small business, you’re typically underserved by large corporate issuers, and your departments may not have a very sophisticated usage of SaaS platforms in general. Those are the players who are well attacked by Spendesk, Expensya or Payhawk. That’s where they gained a lot of initial traction. But now I’m seeing there’s a shift towards more mid-market and enterprise clients, because those bigger companies have realised the benefits that these fintechs bring. For example, Brex, one of the leading fintechs in the U.S. recently pivoted its strategy to address the needs of mid-market enterprises in the U.S. Another player is Ramp. If you look at its revenue break up, most of the high growth revenue actually comes from mid-market segments as against small businesses.
The third trend is the increased convergence of software workflows outside of just spend management with the spend management platforms. To give an example, if I’m only offering expense management, I still have to pay my vendors so I need procurement software. This provides a good segue into making procurement payments. Consequently, a lot of expansion is happening among expense management players which are going from traditional propositions into other areas like procurement, or even accounts receivable to eInvoicing or eBilling integrations. And that’s actually the dream, because as a big corporation you want to have one system for everything. But the reality is every corporation uses different systems for different workflows. So, the integration of all of those workflows coming together is something which I see getting a lot of tailwinds in the U.S. and Europe.
If you’re a switched-on expense management provider, right now you’re thinking about the gateway to providing other services to clients from a financial perspective.
Can you describe the challenges of expanding into different markets for expense management propositions?
The challenges of expanding into markets should not be underestimated. Take accounting for example, accounting platforms are a very fragmented marketplace in Europe, so the leading accounting platforms in the UK are fundamentally different to the leading accounting platforms in Germany, and different again to those in France.
The other thing is that there’s so much localisation that happens in accounting treatments and software adjacencies that we just can’t passport a solution from one market to the other without having a degree of localisation. So, when we speak to expense management players, one of the things that they keep telling us is their go to market success depends on having deeper integrations with several accounting platforms. If you’re Spendesk or Pleo or if you have to serve several markets, you need to have integrations with the key accounting platforms with those markets, and be able to localise your reconciliation feeds and localise the way your expense reporting conforms to the right VAT standards, for example.
There’s a heavy degree of localisation that these players have to bring in to create a uniform European champion. That’s also the reason why we haven’t seen a European champion so far – it’s because of the fragmented local and regulatory requirements in each of these markets. This is actually one of the pain points to scale in Europe. And the landscape of accounting platforms and other SaaS requirements does make it a complicated journey for the spend management fintechs.
Where next then for B2B expense management?
There are two areas which I think might be interesting from an expense management standpoint. One is the fact that small businesses are being targeted now and I think that is where a lot of expense management fintechs will find their next recipe for success. The challenge with large corporations is that they typically have in-house systems like SAP Concur. So, it’s difficult to displace them with one software integrated platform because you’re kind of taking away existing workflows.
The biggest challenge is how to get traction in that market, but I do think with early success of players like Brex and Ramp in the U.S., we will see certain use cases on certain specific verticals like ad media or legal, where you will see higher uptake of spend management fintechs than other verticals.
The second area is broader expansion into other fintech use cases. So, not just offering cards but also offering working capital financing, or even bill payment possibilities. For example, if I’m an employee and I want to make a mobile payment from my employers using it as a form factor, I could do that at the push of a button. Enabling those kinds of use cases would be an area where fintechs would likely expand into. Interested in this topic?
Take a look at Flagship’s Insights content on B2B expense management here.
