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The start-ups disrupting the corporate credit card market

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New York-based fintech Ramp would not be the most obvious contender to become a pandemic-era hit. 

The company launched a corporate credit card product a month before the pandemic forced office workers to retreat from power lunches and other mainstays of the expense account.

Despite the crisis, last month Ramp said it had reached a valuation of $1.6bn following an investment by the payments group Stripe, a significant mark for a two-year old start-up.

Ramp is just one of several fintech start-ups hoping to upend the corporate card market, which is dominated by American Express and other big banks. A splashy run of dealmaking has recently drawn attention to the sector, which facilitated more than $1.5tn in spending in the US in 2019, according to Nilson data.

Brex, a start-up that gained early buzz by selling cards to companies in the high-profile start-up accelerator Y Combinator, hit a $7.4bn valuation last month following a $425m round of funding led by Tiger Global Management.

Weeks later, Utah-based Divvy agreed to sell to the financial software company Bill.com for $2.5bn in cash and stock, a more than 50 per cent premium to its last valuation during a financing announced in January.

In Europe, Pleo and Soldo have also raised venture capital to take on the corporate card market.

“This is an industry that the world has passed by in many ways,” said Eric Glyman, chief executive of Ramp.

Ramp, which had already started offering cards to a few other start-ups before its public launch in February 2020, now facilitates more than $1bn in annualised transaction volume, which Glyman said makes it the fastest-growing corporate card in the US. It makes money through interchange fees worth between 2 and 3 per cent of each transaction.

Ramp claims its cards and software programmes encourage customers to save rather than spend. Unlike other providers who emphasise complex rewards and points systems, Ramp offers only cash back.

Like Brex, Divvy and others, Ramp also claims its technology allows companies to better monitor expenses and even larger capital allocation decisions.

“We’re collapsing a lot of the software processes and doing some of the heavy lifting,” Glyman said. “An interesting product can be built when we do it that way.”

Proponents of the new cards insist their appeal is not limited to other tech-savvy start-ups. Ramp says about a third of its new customers switch from American Express, and Glyman said most of the company’s growth is in “really traditional industries”. One of the company’s largest customers is a potato grower that operates in 20 US states.

Still, some analysts have raised doubts that the start-ups will be able to attract larger, more profitable enterprise clients. John Coffey, equity research associate at Susquehanna, said Divvy, for example, was not an immediate threat to American Express despite its early inroads with small- and medium-sized businesses.

“I think they are well-positioned to convert merchants who are outgrowing small business cards and are ready to graduate to the better expense management tools that corporate cards normally provide,” Coffey said.

The other long-term proof point for the new firms will be showing they can avoid major risk management stumbles as they gain scale, but so far, things appear to be going well.

Ramp’s Glyman said he was “very comfortable saying we have the best credit and charge-off performance in the industry”. A recent securitisation deal by rival Brex, meanwhile, provided more concrete data to support executives’ confidence.

Brex in March sold $185m of securities backed by its card portfolio, and rating agency KBRA gave the senior tranche of the securities — which represent the vast majority of the total — an investment-grade “A” rating. 

KBRA said Brex, which had processed more than $7.7bn in transactions as of April, has never had a monthly charge-off rate — the percentage of defaults as a proportion of outstanding credit — of more than around 1 per cent.

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Quick Fire Q&A

Stay up to date with up-and-coming disrupters. Each week we ask a fast-growing fintech to introduce themselves and explain what makes them stand out in a crowded industry. This week we spoke to Günther Vogelpoel of Recharge.com, which is working to bring “branded payments” — think Netflix gift cards or mobile phone top-ups — from the preserve of supermarket checkouts into the digital era.

When were you founded? 2010

Where are you based? Amsterdam, Netherlands

Who are your founders? Robin Weesie and Dirk Ueberbach

What do you sell, and who do you sell it to? The broadest assortment of branded payments — digital currencies like gift cards, call credit, payment cards — to consumers worldwide.

How much money have you raised so far? $36m

What’s your most recent valuation? Undisclosed

Who are your major shareholders? Prime Ventures, Committed Capital and our founders.

There are lots of fintechs out there — what makes you so special? Nobody owns the consumer side of branded payments on an international level — we’re on a trajectory towards global leadership.

Fintech Fascination

Four more stories from the industry that caught our eye this week . . .

N26 in spotlight over money laundering concerns. Again. German financial regulator BaFin this week appointed a special supervisor to monitor anti-money laundering efforts at N26. The regulator’s announcement marked the second time the eight year-old company has been criticised for compliance failures in two years. After the regulator’s last intervention in 2019, CEO Valentin Stalf claimed that problems at the bank had been exaggerated in the media, but BaFin said this week it had identified several “deficiencies” in areas such as IT monitoring and customer due diligence.

Wirecard fallout spreads to Lithuania A Lithuanian fintech called UAB Finolita Unio has been caught up in the ongoing Wirecard scandal, with prosecutors suspicious that the company was used to steal more than €100m from Wirecard shortly before it collapsed. Lithuania has touted itself as a fintech hotspot, housing the largest number of regulated firms in the EU since Britain’s exit. However, the case could feed longstanding concerns that the modestly sized Bank of Lithuania lacks the resources to thoroughly supervise all the new start-ups.

eBay: buy it, sell it, loan it? Online marketplace eBay has started offering loans to the hundreds of thousands of small businesses that sell through its platform. The initiative is limited to the UK for now, but eBay described the plan as a “landmark” that could lead on to greater things, and it will be watched closely by executives at mainstream banks who have long feared the encroachment of Big Tech on to their turf. EBay may be a relative minnow compared to giants like Amazon or even its one-time subsidiary PayPal, but its market value is still around 50 per cent higher than the UK’s largest business bank NatWest, highlighting the potential threat.

Facebook’s digital currency shrinks further While eBay takes its biggest steps yet into financial services, other Silicon Valley firms are scaling back their ambitions. Facebook’s digital currency project Diem — which was once touted as a full-frontal assault on the finance industry that threatened banks, card networks and even central banks — is now shifting its operations to the US and partnering with a domestic bank to issue a stablecoin that is backed solely by the US dollar rather than a basket of international currencies and assets.

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