Fintechs focused on consumers are struggling, but business-oriented firms believe they can continue growing by helping corporations be more efficient in digitizing the trillions of dolllars they pay each other every year.
Ramp, a corporate card and spend-management startup, launched a new financing option for its bill-pay product Tuesday that will allow customers to stretch — or "Flex" — payments between 30 and 90 days. The announcement comes a week after Bill.com, which helps small and mid-size businesses digitize invoice payments, announced a nearly 160% quarterly revenue increase that boosted its share price on Wall Street.
The two companies are players in an increasingly competitive market for corporate spending as startups and larger tech companies offer charge cards, invoicing software and automated accounting.
Flexing spending muscles
New York-based Ramp is hoping to serve more of the overall corporate spending market by offering short-term financing on bill payments. Citing data from Visa, Ramp said only about $1.5 trillion out of $120 trillion in business-to-business transactions are paid through credit or charge cards, which is Ramp’s lead product.
"There is a trend that businesses are wanting to put things on card for the convenience or the cash back," said CEO and co-founder Eric Glyman. "But there are cases where it may not be possible. We want to be able to support both."
Its new Ramp Flex product, which is launching on a limited basis, will cover bill payments for either 30, 60 or 90 days. Ramp pays the vendor the bill and collects the total from its customer after the agreed-upon time frame, plus a variable percentage of the total cost (press materials shared by Ramp showed charges between 1% and 3%). Glyman said the Flex advances will use the same underwriting processes that Ramp uses for its cards, which are charge cards that must be paid off each month. Ramp’s announcement described it as the first service of its kind where businesses can finance all bills.
Glyman anticipates that Flex funding could be particularly useful in helping companies manage expenses such as inventory, especially in an era when supply chain delays are common. While Ramp has not categorized it this way, the product is similar in focus to the growing line of companies offering “buy now, pay later” financing for business-to-business payments.
This is the latest expansion of Ramp’s offerings. Ramp launched three years ago, focused on corporate cards and spend-management software. The startup introduced its Bill Pay service in October and says it has already processed more than $1 billion in payments on an annualized basis — which can be finalized on its card, through wire or check.
The company in March raised a reported $550 million in debt and $200 million in equity at an $8.1 billion valuation. It has raised more than $1 billion total in debt and equity.
The firm derives most of its revenue from interchange fees on purchases. But even as companies cut back overall on spending in the face of an uncertain economy, Ramp is betting it can keep growing because firms believe digitizing billing and payment functions can save costs in the long run.
"You've got very skilled people spending hours over many days each month just transcribing invoices versus doing strategic work, figuring out where the business should be investing, where you can actually negotiate better deals — that's a much higher return on investment," Glyman said.
Bill.com’s boost
Bill.com CEO René Lacerte had a similar message on a call with analysts Thursday. The San Jose company reported a 156% jump in quarterly revenue to $200 million. The company was able to shrug off reduced business spending in categories such as advertising because of momentum in getting small and mid-sized businesses to digitize and automate payments.
"As businesses react to the macro environment, we believe that our platform becomes more valuable by enabling SMBs to do more with less, while increasing visibility and control," Lacerte said.
Bill.com has about 158,000 customers who contributed to $55 million in subscription revenue last quarter, a 77% year-over-year increase. Total volume of payments sent through its software climbed 46% year-over-year to $61 billion for the quarter.
Last May, Bill.com acquired Ramp competitor Divvy for $2.5 billion. Lacerte said Bill.com has been able to cross-sell its customer base on Divvy’s corporate card, with Divvy adding about 2,000 Bill.com customers over the past 12 months.
Wall Street liked what it saw out of the earnings; the firm’s share price rose 17% the next day. Bill.com "could benefit from SMBs looking to cut costs by automating in an inflationary environment," wrote J.P. Morgan analyst Tien-tsin Huang.
While Bill.com’s share price fell Monday with the broader market, its value has climbed 30% over the past month. It is still down about 30% on the year but that is well ahead of the F-Prime's fintech index, which shows a roughly 77% fall for fintech stocks year-to-date.
Opening the corporate wallet
The market is increasingly competitive for spend-management and bill-paying software. Besides Divvy, Ramp’s rivals include Airbase and Brex, which have also started offering bill-pay products.
Not all companies cater to the same customers. Brex recently dropped small business customers to focus on venture-backed startups. In general, they are all chasing large incumbents such as American Express in the corporate card space or Concur in spend management.
To stand out, the fintechs are “trying to own the corporate wallet,” said Robert Le, a fintech analyst with PitchBook. “From corporate expense, expense management, accounting, to payments, to reporting: everything.”
While Ramp has positioned itself as a competitor to Bill.com and others, Glyman said there is plenty of room for growth for the industry as a whole.
"It is often hard to wrap your head around how many businesses there really are, and just how much $120 trillion really is. There's small industries, medium, large, fintech," Glyman said. "There are a lot of folks doing a lot of great things in this industry. The competition is good."
