Fintech Predictions Part I — The Opportunity for Finance & Treasury as a Service

Where we’re seeing whitespace for founders to build treasury infrastructure

The Importance of Finance & Treasury Teams

At the heart of every business is cash flow. Treasury and finance teams have the critical task of managing current and future cash flows, ensuring enough working capital to meet financial obligations and investment of assets for future activities.

Treasury teams align under three pillars: cash management, risk management, and strategic finance. In smaller organizations, treasury is usually covered by the CFO or finance department, while larger enterprises have their own treasury departments with the Treasurer reporting to CFO. Below are three critical functions of a treasury:

1. Cash Management: Treasurers need to understand their cash and liquidity position in real-time to make decisions for working capital. This includes making payments such as accounts payable, reconciliation of income and outgoing payments, and investments of assets for working capital to mitigate any risks.
2. Risk Management: Depending on the size, location, and nature of the business, treasury and finance teams must accurately monitor and offset potential risks. Common areas include foreign exchange risk for companies that transact globally or interest rate risk affecting any borrowing and lending activities. Other areas might include: commodity risk (hedging any commodities or raw materials), credit risk (assessing creditworthiness of customers), liquidity risk (fulfilling short term obligations), and operational risk (transaction fraud or internal/external events).
3. Forecasting: Treasury teams will work with strategic finance teams to make predictions on the company’s future cash position to properly plan and allocate resources. While treasury teams have typically focused on short term cash management, and financial planning & analysis on longer-term models, both teams have strengths for collaboration. FP&A teams might drive scenario models for top-line revenue, headcount, operating expenses, with treasury teams providing valuable guidance on 12–18 month forecasts.

Opportunities to Build in the Market

At Montage, we’re excited about the emergence of mission-critical infrastructure to help the treasury and finance teams manage cash flow. Below are opportunity areas we are actively exploring and collaborating with founders:

1. Intelligent cash management and investment for SMBs

In the current economic environment of rising interest rates, there is a wedge for startups to provide better yield on idle cash for small to mid-market companies. A 4.50% yield on a $3M deposit can generate $90K interest yearly, a potentially meaningful impact an operations. Providing companies with cash returns in addition to fund insurance, instant liquidity, and automated portfolio management is a great wedge for incumbents to gain trust through asset management with a path towards overseeing broader money movement.

In the SMB space, we’re excited about business models that can offer passive and active portfolio management. We’ve seen providers offer 4%–8% yield, based on risk tolerance, with daily to 3-day liquidity. We see offering a suite of dynamic and personalized investment options (from the safety of negotiated bank rate deposits to riskier mutual funds) as more sustainable than yield-chasing, as well as a path towards additional products such as payments, expense management, or risk management. In addition to targeting startups to mid-market companies, incumbents can embed their platform for other fintechs and banks.

Examples: Treasure Financial, Mayfair, Vesto, Arc, Trovata, Kyriba

2. Offsetting currency risk for globally transacting companies

On the enterprise side, global companies often have treasury teams in-house and may opt for more specialized, modular solutions. Given the rise of the strong dollar, companies like Salesforce have pointed out the negative effects on their financial results, needing a hedging and derivatives solution. There is an opportunity to build tech-enabled solutions to programmatically offset foreign exchange/currency risk, bringing simplicity to traditionally complex financial workflows like futures contracts, forwards, options, and swaps.

Examples: Alpha Group, Derivative Path, Bound, Pangea

3. Automating financial operations such as ledgering and reconciliation

At least once a month, accounting and treasury teams must reconcile payments, a process that involves matching internal records to transactions on bank statements, cards, and other financial institutions. This process can lead to more accurate views of cash on hand and uncover any issues like unpaid invoices or fraudulent activity. Unfortunately, many teams rely on manual reconciliation through Excel, leaving whitespace for automated solutions.

For small businesses with few bank accounts and low volume of transactions, standard accounting software like Quickbooks can check ties to bank statements, although users often face broken bank feeds. For larger companies, reconciling global payments can be complex, involving cross-checking against multiple bank accounts, payment methods, and currencies.

As a result, payments reconciliation software needs to integrate with a variety of ERPs, bank accounts, cards, general ledger, and balance sheet totals in real-time. More nuances may appear for fintechs or marketplaces — where companies may need sub-ledgers, record fees, and split payments across various currencies and rewards, or for specific verticals — such as commerce in tracking physical inventory.

As these ledger providers become the system of record for fintechs, an interesting expansion area we’re seeing is the categorization and tagging of transactions for finance teams to gain insights into the business, like spend per department or contribution margin across business lines. Additional areas can include payments, transaction monitoring, forecasting, and virtual accounts.

Examples: Modern Treasury, Ledge, Nilus, Proper Finance

4. Digitizing B2B payables, receivables, and financing across verticals

B2B payments are a $25T market in the US, with SMBs representing about $10T. For majority of small and mid-market businesses, making payments to other businesses is still cumbersome, expensive, and slow. An estimated 40% of small businesses still choose to get paid by check. Given the rise of P2P instant payments, enhancements in same-day ACH, and upcoming real time payment rails, we are heading closer towards towards account-to-account transactions for businesses.

As bill.com moves more upmarket towards enterprise, we’re excited about the large opportunity for new B2B payments platform to help SMBs make bank payments to multiple vendors, create invoices for accounts receivables, integrate with backend systems, and potentially offer financing products to smooth cash flow.

More specifically, For A/P and A/R solutions, baseline feature sets include: OCR for bill capture, batch payments both domestic and international, approval workflows, and bookeeping classifications and integrations. A winning playbook means feature parity to larger incumbents like Melio and Bill.com (still both hardly penetrating the SMB market combined) with strong distribution and network effects over time. By starting with a specific vertical, companies are able to get more nuanced knowledge on workflows and build a network density.

On the financing front, companies can develop proprietary risk and credit models to underwrite businesses through real-time analytics and data flowing through the platform. Manual processes associated with lending can be automated and help SMBs smooth cash flow on either the payables or receivables side.

Examples: Melio, Settle, Balance, Paystand, Routable

5. Billing platforms to become usage-based and metered

Usage-based pricing models have become more popular given improved customer experience and revenue predictability. Common examples of usage-based billing include: Snowflake tracking compute resources, Stripe billing per successful charge, and Zapier charging on the number of tasks created. Unlike the per user/seat model, customers get charged post-usage, creating more complexity in tracking customer events, calculating invoices, and staying compliant.

We’re excited about platforms enabling revenue and engineering teams to dynamically bill and track value-based metrics. The use cases for custom billing are broad, powering developer infrastructure, SaaS, and fintech business models. On the fintech side, there is opportunity to implement more complex billing such as volume based pricing, tiered rates, and transaction-based pricing with interchange rates.

Examples: Metronome, Sequence, Stage, Octane, m3tr, Bluehill

6. Intelligent financial planning and insights

The modern tech stack has ballooned in new tools and applications. Data sources are sprawled against a variety of systems — ERPs, CRMs, BI tools, HRIS tools, data warehouses, and software vendors. While legacy enterprise players like Anaplan offer financial planning, a new generation of software is needed that allows team to connect across sources, collaborate with others, and automate insights.

There have been many recent entrants for FP&A or business teams. Various approaches include newer spreadsheets/next-gen Excel, low-code plug vendors automating KPIs, to an in-between a customizable spreadsheet with automated features. We are most excited about the latter — platforms that truly understand the FP&A’s workflows in retrieving real-time data sources for customized scenario planning, dashboarding, and drill-downs into specific transactions.

In addition, as more data becomes captured for business models, platforms have a unique opportunity to capture valuable financial data and metrics for benchmarking from volumes of transaction-level data. For instance, AI-driven use case can detect anomalies and outliers in supplier charges.

Examples: Equals, Causal, Mosaic, Trace, Vareto, Abacum

Ways to Win and How We’ll Help

Across these opportunity areas, we see three core pillars towards building a defensible platform play:

1. Deep connectivity across a sprawling landscape of vendors;
2. Real-time visibility in a world of instant payments;
3. An initial wedge targeting a core use case, with expansion opportunities through new product features or embedded fintech opportunities.

At Montage, we are deeply committed to collaborating as an entire team to help founders we back to succeed. We work for founders, bringing new introductions to customers and partners, advising on product and GTM strategy, closing critical hires, and coaching through future financings.

Founders building in areas of Embedded Treasury, FX management, Vertical B2B Payments, and Automated Financial Operations or Planning tools — we would love to chat with you. Please send a note to Matt Murphy (mmurphy@montageventures.com) and Connie Wang (cwang@montageventures.com).