After three years of offering banking services to startups, San Francisco-based Mercury is launching a corporate payment card called IO. The corporate card market is an increasingly crowded fintech sector with companies such as Brex, Ramp, Divvy and Rho all competing to leverage technology to provide better financial tools for businesses, including maps.
Since its inception in 2017, Mercury’s plan has been to offer small startups their most basic financial needs – a bank account – first, then roll out more advanced products as their clients’ businesses grow. . Mercury launched its business bank account in 2019 in partnership with FDIC-insured banks Choice Financial Group and Evolve Bank & Trust. In a $120 million funding round in July 2021 from investors including Coatue and Andreessen Horowitz, Mercury secured a $1.6 billion valuation.
Over the past year, Mercury has rapidly expanded its customer base, from 45,000 businesses at the end of 2021 to 80,000 today. Its customers are typically small businesses – only about 2,000 of them have more than $1 million in their accounts. Mercury’s IO Card goal is to serve startups that are often too small to qualify for existing corporate card programs or, if eligible, receive insufficient credit limits.
“Our approach has always been to serve the smallest customers from day zero,” said Immad Akhund, 38-year-old founder and CEO of Mercury. “We need to be able to support customers when they’re really tiny, so we’ve designed our processes to scale from the smallest customer to the largest.”
Earlier this summer, corporate card competitor Brex announced it would close accounts for small and medium-sized businesses as it focuses on serving business customers, except for capital-backed startups. risk. Rho focuses on medium-sized businesses with revenue between 10 million and 1 billion dollars. Ramp targets a wide range of businesses, from small to medium-sized businesses.
Prior to founding Mercury, Akhund founded two other companies and was a part-time partner at prominent startup accelerator Y-combinator, which helped launch companies such as Airbnb, Coinbase and Dropbox.
“As an entrepreneur, I was just very frustrated with the banks we had to use,” says Akhund. “The products barely worked, kept breaking, had a lot of charges and it was really difficult to use customer service. So all these frustrations that everyone has with banks – I couldn’t see why we couldn’t do better.
The IO Card offers 1.5% cash back on all purchases, with no annual fee or personal guarantee by a business owner required. Mercury customers can issue corporate cards to their employees for expenses ranging from subscriptions to business-related tools to travel, and the cards also allow expense controls like customizable limits on an employee-by-employee basis.
IO cardholders are responsible for monthly bill payments – this is not an ongoing credit instrument. For now, Mercury funds the cards, which are typically redeemed within 15 days, using its own balance sheet. The company has enough cash to cover short-term expenses, Akhund says, but the next phase of growth will likely involve partnering with a bank to fund that shortfall.
As businesses evolve and their expenses increase, they need corporate cards for employees to cover business expenses such as travel. For decades, this market has been dominated by AmEx, which offers sleek cards with generous rewards, including travel discounts or employee gift cards. In recent years, fintech challengers have entered the market, often combining software with financial services to offer expense management tools or more flexible card options.
Brex and Ramp, two of the biggest names in the space, launched their corporate cards in 2018 and 2020, respectively. Rho launched its corporate card last year. In January, Brex closed a funding round with a valuation of $12.3 billion, and two months later Ramp secured a valuation of $8.1 billion. While competitors like Ramp and Brex started with a corporate card and then added features like budget management tools, Mercury started with the bank account. Brex and Rho offer corporate bank accounts, but not Ramp.
Starting with a bank account gives Mercury a clearer view of its customers’ finances, which allows the company to make more informed credit decisions, Akhund says. In order to extend credit, corporate card issuers often require companies to prove a certain amount of cash on hand in order to qualify. Mercury considers both cash on hand and historical data from existing customer accounts to determine creditworthiness. Akhund anticipates that a company’s total card limit will generally be 20% of its account balance.
Mercury customers must have $50,000 in their accounts to be eligible for the corporate card, which is less than the Ramp or Brex minimum balances of $75,000 and $100,000 (for companies that do not have venture capital funding), respectively. AmEx Corporate Card customers must have at least $1 million in a linked business bank account to qualify and get a limit of up to 10% of that account balance. Fintechs’ lower qualification requirements compared to AmEx reflect their focus on early-stage companies.
Although it’s been a tough year for fintech companies, with falling valuations and staff cuts, Akhund says he’s not worried. Last year, Mercury brought in $15 million in revenue, and its July 2021 fundraiser valued the company at more than 100 times its revenue. It’s a lofty valuation that will be difficult to meet, but Akhund says the company still has $90 million in cash from its July 2021 fundraising of $120 million. This means that, like many fintech companies, Mercury can probably wait a while before having to raise money again, thus avoiding a dreaded “round the table”, when a startup needs to raise money at a lower valuation. .