Post COVID Travel — Virtual B2B Cards
Commercial Cards for more than just travel
I got my J&J vaccine last week and started thinking, it is time to travel!
Which as a payment nerd got me thinking about Virtual B2B Cards, ok, I have too much time on my hands, but who doesn’t.
My big project with Discover last year included Virtual B2B Cards for the Fleet segment. It makes sense, you want to be able to have a driver use a card for a payment and not just hand all your drivers a card to do anything with. So why a Virtual Commercial Card? Using the excellent Credit Suisse Payments 2020 report that I have referred to previously, the reasons are:
- Improve speed and simplification of AR & AP reconciliation processes
- Reduce operating costs — scale from process efficiency….
- Increase control of corporate spend…but specifically by amount, date, merchant type
- Revenue opportunity from financial incentives (rebates) on transactions
- Reduce fraud — single use virtual cards have the ultimate control
- Better reporting with enhanced data
As anyone that reads B2B Buzz knows, this great list covers just about every checkbox of every CFO | Controller we have ever met. So are Virtual Cards popular for B2B transactions?
Well let’s parse this out a bit first. Virtual cards according to the same Credit Suisse report are growing at a nearly 20% CAGR from 2017 to 2021, for reference that is about 2–3 times the industry overall growth rate. So the answer is yes.
From Juniper Research: “Are Virtual Cards Ready for Primetime”
“B2B usage will account for almost 80% of virtual card transactions value, which will double over the next five years. In 2020, a 4% annual decline in spend levels will be slightly offset by an anticipated 11% transaction growth, as businesses travel less but need to authorize spend remotely.”
Virtual Cards are growing for B2B commercial. So who leads this high growth segment? Some really cool San Francisco Fintech startup funded by a16z?
No, actually a company called WEX based out of Portland Maine that has been in business since 1982 and originally called Wright Express Corporation as their roots were all around Fleet Cards. They are a near doppelgänger for Fleetcor which also started in Fleet cards for fuel and have expanded into travel and overall B2B payments.
Having looked at both WEX and Fleetcor during my time diving into the world of fleet payments, I often had trouble keeping them separate in my mind as to which company was doing what as they are nearly identical. Sorry to any WEX or Fleetcor readers here, but seriously the footprint and strategy seem identical.
From their own investor documents:
Fleetcor’s annual revenue of $2.6 Billion breaks down as:
- Corporate Payments / 19% of revenue
- Fuel / 44% of revenue
- Lodging / 8% of revenue
- Tolls / 13% of revenue (Brazil focused)
- Gift Cards / 7% of revenue (not a focus)
WEX’s annual revenue of $1.7 Billion breaks down as:
- Fleet Solutions / 60% of revenue
- Travel & Corporate / 21% of revenue
- Health & Employee Benefits / 19% of revenue
If you do the breakdown as Fuel + Tolls = Fleet Fleetcor is at 57% vs WEX at 60%. Further if you say Travel is Lodging + Corporate then Fleetcor is 27% vs WEX is 21%. WEX’s Health and Benefits is an outlier at 19%. So why talk about these two solid but obscure companies.
Virtual B2B Cards !
Fleetcor acquired Nvoicepay to gain some technology associated with Virtual Mastercard and other B2B payments technology. WEX acquired Optal and eNett which both have virtual card technology. eNett says they were redefining virtual payments for the travel industry.
A note for a separate Blog is about WEX acquiring Optal and eNett at the start of the Pandemic lockdown, for $1.28B in cash and 2 million shares of WEX stock. This included WEX taking on debt. WEX backed out of the deal based on “force majeure” and ended up executing the deal later for $577 million after a UK court sided with WEX.
After all is said and done it might end up being a brilliant deal for WEX as virtual B2B travel cards will likely continue to grow as travelers want simplified payments while CFOs will want better cost controls.
How does a Virtual Travel Card Work, from WEX we can see the flow here:
Interesting they call out a travel company. I have booked my own travel on Expedia for the past 5+ years but realize big company execs still us Amex Travel.
So earlier, I said the leader in the space for Virtual B2B Cards is WEX not some cool startup. Well, that is true for now. Here are a couple of B2B expense management companies coming along to shake up the B2B Card Game with their own platforms that include virtual cards:
Let’s focus on two, Divvy and Ramp. “Divvy and Ramp offer their corporate spend products and software for free, taking a slice of payment volume through interchange revenues.” Techcrunch — January 5, 2021
First up is Divvy, based out of the up and coming Utah tech space. In January of 2021, Divvy announed a $165M fund raise at a $1.6 billion valuation. From Techcrunch
“Divvy helps businesses manage payments and subscriptions, build strategic budgets, and eliminate expense reports.”
Second is Ramp, now the fastest growth unicorn from the NYC Fintech scene. Ramp just raised $115M on a $1.6 Billion valuation. The Techcrunch description of Ramp is very different from the Divvy one, although they seem as eerily similar to me as WEX and Fleetcor:
“Ramp is a technology company that develops corporate cards designed to save money for businesses.”
Now for the interesting part:
WEX Enterprise Valuation $9.69 Billion
Fleetcor Enterprise Valuation $23 Billion
Divvy Enterprise Valuation $1.6 Billion
Ramp Valuation $1.6 Billion
Good for the upstarts to already be in the billions. But concerning for WEX to be that far behind Fleetcor. A quick glance at their revenue and profit shows that Fleetcor is just executing better than WEX.
Would anyone be surprised to see Divvy and or Ramp pass WEX’s valuation within 1–2 years. I don’t think so as with any sector even B2B Virtual Cards, innovation and agility will always win.
The good news for all of us is that maybe Expense Reports are a thing of the past.
