If you’re familiar with Fintech you recognize it as a booming space. Within it, payments is a highlight.
According to Statista, from 2016 through 2021, payments has been one of the leading destinations for VC money in the Fintech arena. M&A activity for payments has also been heightened and is “here to stay,” according to S&P Global Market Intelligence.
As we peel the onion on payments, a sub-area that has grabbed a lot of attention is the cross-section of payments and expense management or (donning a different garb) spend management. As of late, several mega-deals have gone through as have IPOs. Entrepreneurs and traditional finserv alike are scrambling to create value and capture markets in this space.
About a year ago, one of us wrote a piece on these very pages asking where the B2B platform stories are in Fintech. We remain confounded by this question in payments and expense management. Our thesis is that point solutions in this space are actually reinforcing the bad behaviors and compounding the problems that are purportedly being solved.
If we were to build an example in this realm: take the “simple” notion of expense reports, a universally loathed but necessary part of business. The typical scenario is as frightening as it is common – the spending employee uses a personal credit card for business expenses, keeps receipts and then submits an expense report for reimbursement. The problems arise immediately – the spending employee has to keep and compile receipts and can easily (often unintentionally) commingle personal with business expenses.
In addition, finance has no idea spend took place until the expense report is submitted, which, given the labor involved, is often late. If there are issues with the reported spend, finance and accounting have to take it up with the employee, causing delays and unnecessary acrimony. Accounting also has to reconcile the reimbursements – and categorize spend – with accounting systems and has to effect payments for reimbursements on time. A myriad other factors come into play as well but suffice it to say that the entire process is friction-laden, disharmonious and bewilderingly cumbersome.
Several companies, including many excellent ones, entered the fray with expense reporting solutions that took out a lot of the minutiae. From cloud-based, mobile-optimized receipt management to built-in spend categorization and taxonomies and so on, these solutions tackled real and legitimate issues.
But in the way they were architected, they reinforced the same paradigm – that of deep siloes and walled gardens. These point solutions solved real problems but only cosmetically insofar as they created others.
Take the expense scenario we discussed. While they made reporting expenses easier, they did not solve the problem of pre-approved spend guardrails or line-level expense management. They did not fundamentally integrate with accounting systems and they didn’t have open architectures for best-in-breed third-party solutions to sit on top of. So what about business travel? What about fleet? What about a card that all employees can have but with on-the-fly changeable limits and pre-approved spend categories?
The issue is one of both business and technical architecture. You can choose to build a point solution or a platform. You can choose to solve a piece of the problem and continue the confusion or to look at the essence of the issue and go after the core. Only a platform story can do the latter.