A few weeks back, TechCrunch wrote about how Ramp, a corporate credit card startup with a focus on cost control, had added expense management software on top of its company plastic business. Closing out our piece, I wondered if “cards aren’t de facto commoditized by this point,” given the sheer number of companies that are willing to either underwrite or supply corporate and consumer plastic.
One company in particular agreed with the sentiment, namely Airbase, which we last covered in March when it added $23.5 million to its Series A round, albeit at around triple the valuation of its earlier Series A tranche.
CEO Thejo Kote tells TechCrunch that cards are enablers to software, instead of the main event themselves. The CEO wants to build corporate spend software, not a corporate card business.
Airbase offers corporate cards and a SaaS suite of financial tooling to support corporate accounting departments and employees alike. While the startup does collect revenues from interchange — card-providers gets a tiny slice of transactions that occur on cards they hand out — the majority of its revenues come from its recurring software incomes, it told TechCrunch.
It’s a reasonable perspective, as with the increasing popularity of virtual cards, it’s likely that “credit cards” will become more digital spend points than physical goods that you carry on your person in short order. At that point what will differentiate one set of digital plastic from another? Perhaps the software that is wrapped around it.
Cards as a gateway to software is actually a neat business model, as Airbase gets to make money from both products. A bit like how some SaaS companies are adding payments support in-house to add another revenue stream, interchange incomes are a secondary income for Airbase, which Kote considers a B2B SaaS business first.
That doesn’t mean that Airbase isn’t seeing its spend-related revenues grow. According to Kote, Airbase users spent 500% as much in Q2 2020 as they did in Q2 2019, for example. But, at the same time, in the four quarters ending July 31, 2020, Airbase saw its annual recurring revenue (ARR) expand 280%, though the company does count interchange in that figure, which some may find a controversial inclusion. The startup also claimed a net retention rate of 126% in the “first two quarters of 2020.” (Ramp has also seen rising spend results, as has Finix, to provide another reference point.)
So things are going well for Airbase, at least in growth terms.
Airbase has plans to keep building its software stack to subsume (support?) more and more of a company’s spend into its product. A more central spend-and-control suite could save some companies time, perhaps making accounting smoother and quicker. And, of course, it would also make Airbase stickier inside of its customers, and thus less likely to see either SaaS or interchange churn.
Fintech at one point meant accessing your bank account information online. Then it meant doing more banking online than in person. Later came waves of spending services and online investing tools. Most recently we’ve seen banking and investing remade digitally, with fees falling and accessibility rising, at least in theory.
So it’s perhaps not surprising that corporate cards are next to be reimagined, with players like Ramp, Brex, Airbase and others trying to figure out what the future of corporate spend looks like, and how best to get as much of the market for themselves as possible. Let’s see who wins.