A Reckoning for Expense Management Providers?

Navan’s Michael Sindicich wrote in TechCrunch last week ,?

“[F]intech faces a reckoning. Over the past two years, central banks have hiked interest rates from their COVID-era lows to the highest levels for a generation. And now the business models that won consumers’ affection look increasingly tenuous. It’s only a matter of time until the house of cards collapses.”

While the statement is certainly provocative (and perhaps prescient for the formerly frothy fintech space), the article made me wonder how key expense management players were positioned (and if that reckoning was in fact coming).?

In my time as a management consultant, I came across multiple frameworks to understand a business environment, frame decisions, and make choices. One quote stuck with me: “Strategy is a way to win – and nothing less” from Playing to Win by A.G. Lafley and Roger L. Martin. Lafley and Martin lay out a framework asking five questions in the book, three of which I want to highlight:

• Have you decided where you can play to win (and just as decisively where you will not play?
• Have you determined how, specifically, you will win where you choose to play?
• Have you pinpointed and built your core capabilities in such a way that they enable where-to-play and how-to-win choices?

How are major expense management providers' answers to these questions driving operational, product, and go-to-market decisions?

In doing this exercise, I realized there are four key strategic groupings within the spend management sector, relating to go-to-market decisions, where prominent players have decided they will win, and the capabilities needed to win in those segments. These four groupings are:

1. The maintain enough of a lead crowd
2. The take ground in the legacy T&E space hard chargers
3. The not just the expense but the spend management provider of choice expanders
4. The provide (but stealthily) full banking services for businesses players?

In this post and in a subsequent one, later this week, I will break down these groups, starting with Segments One and Two today and Segments Three and Four later this week.

Segment One: The maintain enough of a lead crowd

Providers in this group should be readily apparent, namely SAP Concur as the 9,000 lb. gorilla. The real question is, ¨How do established market leaders like SAP Concur win today, keep winning, and stay ahead of everyone else?¨

Quite simply, established players benefit from an install base, giving them embedded distribution and an annuity line of business. Their solutions have an inherent stickiness because they’ve been used for a long time (never underestimate the cost and pain of changing providers).?

Due to their long-time use, their systems inherently touch, talk to, and are deeply integrated into a business - not just an expense management system, but also interacting (or providing) the core travel, ERP, HR, and more for their customers. It’s hard enough to change one system, let alone impact multiple systems.

While the large install base, solution stickiness, and deeply entrenched relationships provide a moat, leaders’ solutions are also at risk of not keeping up with market demand. Lacking innovation and a modern solution is their biggest risk because as other providers improve, switching costs become less.

Let’s look at a few reviews from G2 for SAP Concur, over the last few years:?

• “The platform is a bit clunky and not always easy to navigate.” June 2023
• “The user interface looks like from the 90s” March 2023
• “The UI seems old and clunky as compared to the newer apps nowadays.” November 2022
• “It's a confusing process to submit an expense and I don't find it to be as intuitive as other expense platforms, unfortunately.” December 2021

While only an illustrative sampling (and Concur has many positive reviews on G2 as well), there are clear themes around usability, clunkiness, and a general outdated quality to the product / experience, that demonstrate that, while many things, Concur does not have a cutting edge experience. However, reading through reviews, the entrenched nature of the Concur ecosystem and integrations are also apparent, nodding to the difficulty in replacing Concur completely or partially in an enterprise.

The real question for leaders (and also their biggest opportunity) is how can they be minimally innovative enough to ensure the benefits of their solution remain and the benefits (and pain) of switching are not high enough to get a corporation to actually change providers.?

Ideas for incremental improvements for providers in this space could be:?

1. Improvements to data availability, speed, and depth: For example, add real time data feeds so that a receipt and entry from a user does not go unmatched for a week in the system waiting for a transaction to populate
2. Web and mobile user experience improvements: Most users traveling are not in front of their laptops. Adding user-centric notifications (underpinned by enhanced data) intelligently designed around policies would go a long way. For example, a simple reminder triggered seconds after a transaction Auth event, reminding a user to save a receipt, would be impactful. Also, a reminder about hitting policy spending limits for food and beverage as a transaction is occurring vs. weeks later would help a user - who most likely is not trying to go out of policy
3. Embedded finance features like reimbursements: Add auto-reimbursements for small expenses, using in-depth data to save the user even filing an expense report. The data exists to do this without user input. The system just has to be set-up to enable this experience

While these ideas are minor, simple improvements can be highly impactful to existing users (and maybe help these providers stay just enough ahead of the competition).

Segment Two: The take ground in the legacy T&E space hard chargers

This is an interesting segment for a number of reasons (and one I’ve strategically paired with Segment One, since this group is actively targeting its install base).

No existing T&E provider will openly say that they don’t want to eat into the enterprise install base of a Concur-like solution. These teams are assuredly trying. However, they are running into hard obstacles.

These obstacles may include an enterprises’ lack of desire to adopt a new corporate card or the lack of full functionality needed to replace a Concur solution fully (e.g., travel management, spend management, reconciliation and accounting). It’s clear though that solutions providers who have decided that they will play in the legacy T&E space are making strategic bets on how to win in it.

As an example, let’s look at Navan - the leader of these Segment Two providers. Navan historically relied on its own self-issued card program. The (formerly named) Liquid Card was key to its core offering and strategy. However, with the summer announcement of Navan Connect, Navan is recognizing the value organizations (read: enterprise businesses) place on their existing corporate cards and banking relationships and is actively adding capabilities designed to combat this objection point to winning in this segment.

From Navan's June announcement (Bold emphasis mine):

“[M]any customers enjoy the benefits they get from their existing institutional corporate card and banking relationships. In other words, leaders want access to real-time control and visibility so fast it feels futuristic — but without the change management or risk intrinsic to such a massive switch. Companies value their established relationships with bank and credit card partners, enjoy the benefits and high rebates, and rely on the stability they provide.”

Navan recognizes the need to go up-market into large enterprises to keep growing as a business, but it clearly needs the required capabilities to win in that market segment that it does not have with its own card program alone. By launching Navan Connect, the team's apparent goal is to lessen the switching costs for an enterprise and attempting to eat into Segment One's moat by enabling enterprises to maintain their banking relationships and also use Navan's software.

A further example of a company focused on the legacy T&E space (although not as far along as Navan) is Mesh Payments. Take a look at a launch announcement from Oded Zehavi, Mesh’s CEO, on LinkedIn on September 15th of the Mesh Travel Management System (Bold emphasis mine):

“Today, global enterprise companies are either stuck with legacy travel management systems that (1) lack integrated corporate cards and modern, automated expense management or (2) narrow alternative solutions that won't allow use of preferred or multiple TMCs based on regional and global needs.?We believe that companies today shouldn't have to choose between solutions not built for modern companies – especially when more remote and distributed teams travel and want an easy and frictionless experience. Mesh Travel Management fills a significant gap in the corporate travel market by using a TMC-agnostic solution integrated with corporate cards and expense automation.“

Again, the strategic target for where to play is firmly within the existing install base of Segment One’s customers. Mesh believes its capability gap for winning in this segment is the travel system and added that capability. It will be interesting to see how Mesh evolves since it appears it is still requiring a business to use its card program, unlike the flexibility Navan added with Connect. Across the industry, we see a trend toward flexibility with card programs, with software services having a more sustainable monetization path long-term and also enabling businesses to maintain the advantages of their existing banking (and card) relationships.

As we’ll see when we examine Segments Three and Four, providers like Navan and Mesh are focused squarely on the travel management and expense management market space - their where to play and how to win choices. Both teams have invested heavily in making their product integrate with existing core systems ERP and finance applications. While Mesh does offer some services that branch into the Accounts Payable problem area, as with Navan, Mesh’s latest announcement demonstrates it believes it can grow on the home turf of the legacy T&E providers and not in the direction of an all-encompassing spend management system.

Time will tell if these are the right strategic decisions for these businesses and others like them in Segment Two.

Stay tuned for the next two segments later this week. If you have any comments, feedback, or additional thoughts, please, leave them a comment or message me directly!