For decades, corporate credit cards were a boring industry, dominated by money-colored AmExes, the default choice for power lunches and client dinners around the world.
Now, a fleet of richly funded start-ups wants to change that. Venture capitalists and other investors have poured big money into a growing group of companies that make credit cards for businesses. That includes more than US$1 billion in funding and debt for just three start-ups: card-makers Ramp, Divvy and three-year-old Brex Inc, which was valued last summer at an eye-watering US$2.6 billion, according to PitchBook data.
The fresh interest in the industry comes as American Express Co — the undisputed leader in the market — revamps its corporate card portfolio, raising the fees on its cards this week after adding benefits for Uber rides and Hilton stays.
Photo: Reuters
Accenture Ltd estimates that overall spending on business credit cards in the US will climb to US$1.1 trillion in 2024 from US$625 billion last year.
AmEx, with a US$92 billion market value, is the largest issuer of commercial cards in the world and has relationships with almost two-thirds of the Fortune Global 500 companies. It is also the largest issuer of cards to small businesses in the US.
“Obviously AmEx has a massive stronghold,” MoffettNathanson LLC analyst Lisa Ellis said. “I’d characterize the new players now as on the radar screen, but not of concern to AmEx yet.”
Brex, founded in 2017, started by introducing a product aimed at other start-ups.
New companies, it said, often had a hard time getting traditional corporate cards due to their lack of credit history. Instead of credit histories, Brex monitors how much money its customers have in their bank accounts on a daily basis. If they are well-funded with cash on hand, Brex believes, they are likely to be able to pay off their credit card debt.
Though Brex has gone after a relatively niche slice of the market, it wants to take on American Express directly.
“We’ve always competed with AmEx,” said Henrique Dubugras, Brex’s 24-year-old cofounder.
Dubugras and his investors, which include Peter Thiel and Kleiner Perkins Digital Growth Fund, believe that tech-savvy competition could loosen the company’s hold on the market. “We don’t underestimate AmEx though. We’re aware, we’re measuring, we’re looking.”
Dubugras explained his company’s strategy at a meeting earlier this year in a cafe Brex has leased and operates in San Francisco’s South Park, a venture capital hub.
Wearing a Brex-branded T-shirt, Dubugras said that while the bulk of its customers are start-ups, it has made efforts to make further inroads with e-commerce companies and life sciences companies. Even the cafe is an example of diversification.
Brex — which has raised about US$317 million in venture capital funding according to PitchBook data, and more in debt capital — had drawn some questions about its decision to dabble in food services.
The cafe menu included ingredients like “smoked grapes” and “bearnaise aioli.”
However, Dubugras said that American Express also operates lounges in airports, and Capital One Financial Corp has cafes in a number of their branches.
“We serve start-ups, and this is the core of the start-up community in San Francisco, so having a lounge and cafe here made sense,” Dubugras said.
Brex is the one of the most valuable venture-funded card start-ups at the moment, but it is far from the only one. Ramp, based in New York, is only a year old and recently attracted about US$25 million in funding from Founders Fund and others.
In addition to offering corporate cards, Ramp can use payments data to find redundant spending at the companies it works with — such as extra software subscriptions or paying for separate document storage accounts. “Anyone at a large company can tell you that there is a lot of waste,” Ramp cofounder Eric Glyman, 29, said.
Divvy — based in Lehi, Utah — in April last year raised US$200 million from New Enterprise Associates, Insight Partners and others, and has secured millions more in debt capital.
In addition to its corporate cards, Divvy offers additional expense tools that make it easier for employees and people in charge of a business’ accounts to keep track of spending.
American Express has taken notice of the uptick in competition.
“We definitely see these new start-ups,” said Anna Marrs, president of the firm’s global commercial services unit. “That reminds us that we need to keep innovating.”
In October last year, American Express introduced a new card program made for start-ups. Like Brex, it has begun using new technology that allows it to see a company’s bank balance as part of its underwriting process.
As credit card start-ups ascend, competition is working as intended, Accenture managing director Frank Martien said.
“We actually see a competitive answer from the large players,” he said.
That will ultimately mean more options for small companies, and more clashes ahead for American Express and its upstart rivals.
American Express might not be in a position to worry right now, but Dubugras predicted that the day will come.
“I don’t think they like us very much,” he said.
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