In the digital age, we’ve seen rapid growth in the number of companies operating globally. The one thing all of these companies have in common? Spend. 

It tapped into a $89 trillion global B2B payments market, set to almost double over the next 6 years, with 40% of transaction volume processed in the US alone (per Fortune). And with all this money being spent, there’s a major need for businesses to understand, manage and optimize their spending patterns. 

Enter: spend management.

A quick background on spend management

Spend management is the process of controlling and optimizing a company's spending. It encompasses all activities involved in how a company spends money, from procurement and purchasing to expense management and accounts payable. It aims to reduce costs, improve efficiency, and provide better visibility into a company's financial operations.

Traditionally, processes were often siloed and managed separately, leading to inefficiencies and lack of transparency within an org. This was the expense management category. But with a major market, came a major opportunity, and expense management modernized into spend management. 

The common goal? Integrate these functions to provide finance teams with a holistic view of a company's spending patterns, enabling easier strategic decision-making.

The genesis of modern spend management: Brex and Divvy

The spend management revolution began with two pioneers - Divvy (2016) and Brex (2017). These innovative companies identified a critical flaw in traditional expense reporting: the post-spend submission model. 

Post-spend submissions led to several pain points for businesses:

• Lack of real-time visibility into spending

• Insufficient controls on expenditures

• Frequent overspending

• Delayed expense submissions (sometimes up to 6 months)

• Difficulty in tracking who was spending and for what purpose

The solution? Real-time spend tracking. This corporate game-changer combined software with embedded corporate cards, and allowed businesses to view spending as it happened, monitor budgets in real-time, and implement proactive spending controls.

While legacy tools, like Expensify, relied on personal card use and per-seat charging models, real-time spend tracking opened the doors to a new approach altogether: transaction-based pricing.

The new model: employee corporate cards and transaction-based pricing

With the introduction of real-time spend tracking, Brex & Divvy also introduced a revolutionary new business model - free:

• Premium corporate cards with high rewards (rewards now accrue to employer instead of employee)

• Corporate cards for each employee

• Charging based on a percentage of each transaction known as interchange

The model caught on like wildfire, creating a new category in corporate finance. But as the category grew, competition intensified. Most notably, Ramp entered the mix in 2019, offering the highest rewards of the group.

The race to reach the trifecta heats up

While category evolution was prompted by innovations in spend management, the true holy grail is the trifecta of corporate spending:

1. Payroll

2. accounts payable / bill pay (structured spend)

3. corporate cards, reimbursements, misc. expenses (unstructured spend)

Coverage across these three categories provides full visibility and unification of all money out at a company.

At Campfire, we’re seeing the lines blurring between categories of spend: Bills are more frequently being paid with corporate cards to maximize rewards (looking at you AWS bill), and contractor payments are often paid via either payroll providers and AP providers. Having unified software across all three categories provides for a more seamless experience when expenses shift across categories.

In the race to reach the trifecta, we saw several strategic moves across spend management players in the past few years:

1. Bill.com, having created the accounts payable category, acquired Divvy to enter spend management

2. Brex and Ramp launched accounts payable products

3. Rippling leveraged its existing employee and org data for approval hierarchies to launch corporate cards and bill pay

4. Expensify introduced a corporate card to evolve from expense management to spend management

5. Paylocity acquired Airbase, aiming to cover all cash outflows

6. QuickBooks moved into debit cards and bill pay, targeting the lower end of the market looking for a unified solution

7. Zip originally started as a procurement intake solution has extended into accounts payable with its own payment capabilities

So, what’s the future of spend management?

As a 15+ year career finance veteran and a former executive at Bill.com, I can confidently say the landscape of corporate finance will only continue to evolve. Here’s my predictions for the future:

Shifts towards seat-based pricing models

The math is simple: there’s not enough contribution margin on card based revenue. For example, premium corporate cards average 2.5% gross revenue (called interchange), and Ramp is very public about its 1.5% rewards program, adding another ~0.3% for fraud, credit losses and other revenue costs leaves ~0.7% or $0.70 on every $100 of spend.

While Pullback of rewards in free tiers may help to increase profit margins, it won’t be enough. Players will need to introduce seat-based pricing models to compensate for existing losses.

Industry titans with unique GTM advantages to launch spend management

Either through building, acquiring or partnering, there’s a unique opportunity for ERPs (NetSuite, Intacct), corporate card providers (American Express, JPMorgan) and payroll providers (ADP, Paychex) to offer spend management without an expensive customer acquisition. For example, Brex’s new embedded offering is a great opportunity to build spend management into tangential products with a large customer base.

Increased focus on global support and moving upmarket

Seat-based pricing models make way for a continued upmarket movement where budgets exist for enterprise-grade functionality. But with a more focused market to tap into, the competition for point solutions and best-in-breed features becomes intense.

Global expansion is also an option, but there are existing challenges due to different lower interchange fee structures.

Market maturity will lead to continued consolidation

With the ultimate end game a trifecta of cash outflow management, we’ll continue to see providers expanding their services - like Ramp’s recent launch into procurement and travel booking functionality that allows them to expand upmarket. It also might mean potential moves into payroll services for Ramp, Brex, and Bill.com.

We’ll also likely continue to see product convergence through acquisitions and partnerships. Larger players acquiring smaller, more specialized services, mirroring the strategies of Rippling and Paylocity. The company that can offer comprehensive, integrated solutions covering the corporate spending trifecta, likely emerging victorious.

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What do you think? Let me know at [email protected]