Good morning,
Today’s interview is another installment in the Stratechery founder series; as a reminder, one of the challenges in covering startups is the lack of available data. My solution is to go in the opposite direction and interview founders directly, letting them give their subjective overview of their companies, while pressing them on their business model, background, and long-term potential.
Today’s founder is Eric Glyman, the co-founder and CEO of Ramp. From Bloomberg last month:
Ramp, a startup that offers corporate cards and other finance tools to businesses, raised $750 million in a funding round that valued the fintech at $8.1 billion…Founded in 2019, Ramp has been building its finance platform for businesses, including a corporate card that tracks employees’ expenses and a bill-pay service that’s its fastest-growing product. The company bought procurement platform Buyer last year, and now handles more than $5 billion of payments volume on its platform annually, with revenue growing almost 10-fold last year. The business plans to use the new funding to build its team, keep up with growth and maintain some dry powder in case another deal comes up, according to Chief Executive Officer Eric Glyman.
I thought this interview was extremely interesting, not only in terms of Ramp’s business, but also in exploring the regulatory and resultant infrastructure changes that created the fintech space in the first place. This is a fairly long one; keep in mind that the Daily Update Podcast is particularly useful for interviews, even if you are generally a reader.
On to the interview.
An Interview with Ramp Founder Eric Glyman
This interview has been lightly edited for clarity.
I’m here with Eric Glyman of Ramp. Eric, as I told you, we actually had a talk last year, and while I gave Parker Conrad most of the credit for the idea of the startup series, our conversation was the other inspiration. After we talked, I was like, “That was really interesting. I would love to figure out a way to talk about this on Stratechery.” But as I noted with startups, it’s kind of tough, there’s no public data, I kind of have to take your word for it. So I get to come here today and just take your word for it, but I think your word’s pretty interesting, so I look forward to talking.
Eric Glyman: I appreciate that a lot. Well, hopefully it can be interesting at the very least and I’ll always do my best to be as highly accurate too, so we’ll do that as well at least.
Well, hey, I’m going to take your word for it. So, you are the CEO and founder of Ramp. Give me the elevator pitch for people that are unfamiliar.
EG: Sure, Ramp offers finance automation to companies. We offer the fastest growing corporate card in America with built-in expense management, bill payments, and accounting automation, and all of our products are fundamentally designed with the intent of helping companies spend less. I think the key value proposition to customers in businesses that use Ramp is that we help the average company cut their expenses by 3.4% per year, and we help them close their books significantly faster, so we speed up month-end close by about eight times the normal speed for most finance teams. In total, since launching publicly in February 2020, incorporating in March 2019, we’ve been able to help customers cut their spend by $135 million, automated away over four-hundred years of work. But really it’s about just re-imagining core finance tools that companies use and helping them be more efficient.
Walk me through this framing, because usually when you hear Ramp, you think it’s a corporate card company. Why do you call it a finance automation company instead of the obvious thing, which is you go to Ramp and you get a corporate credit card?
EG: Some of it I think is getting back to why we started this, which was the intent of “tools are tools” but ultimately business owners, finance teams are looking to run better, more efficient businesses and the original intent of starting Ramp was “Could we design tools, software automations that help the average customers or average business spend less money, spend less time?” It turned out by building a corporate card that could do this and the original first product we launched with was a corporate card designed to help companies spend less.
It was a great first product to do that, to get into the office of a CFO, to help companies originally spend less, but it’s really expanded and it’s always been about the workflow. It’s understanding really in the process of running a business, “Where is spending happening, where is waste happening?” Could you build tools and software that could clean that, identify it, help business owners clean that, cut that? Where is their wasted time?
I think that a lot of the evolution is that while corporate cards are what we’re known for, and certainly our largest product, powering well into the billions each year in purchase volume, actually the fastest growing parts of the platform are outside of corporate card. I think when we first spoke back in September, we were talking about the launch of bill payments, which was going to be in October 2021. Six months later, we’re doing more than a billion dollars a year in volume on bill payments and I think to really represent just the breadth of services and automations that we’re providing to companies, we feel like finance automation is more true to the original mission, and also just more fitting of what Ramp really is doing for companies.
This bit about how you’ve changed the way you talk about yourself is actually quite interesting to me. There are a few different audiences that a founder might speak to. You might speak to your internal audience, your employees. You might speak to investors who you’re raising money from. You might speak to existing customers and you might speak to new customers. Is finance automation the message for all of them? Or is your go-to-market still a pretty concrete, “This is the easiest corporate card, it’ll save you money”? And then all that other stuff is negative churn, where you’re increasing the amount that you’re into a company once you get that beachhead, or is the message an all up, “We’re a finance automation company, you had it wrong before.” Walk me through your messaging, and then I actually do want to ask you about your customer base, so we can do this in two parts.
EG: So first is this idea of we want to help companies both start be using the best and most advanced financial tools crafted to help people spend less, and so our hallmark products are around first, we’re going to help automate finances. So we have our core payment products, the card, bill payments, expense management, and accounting automation through. Next, we talk about scale and the tools that help businesses grow, and so both all the financing that companies really need as well as the tools and control to make sure the funds don’t go anywhere that business owners and managers don’t want it.
Once you have the right products, the tools in place, Ramp really can start going to work in helping companies streamline their flows. It turns out that in closing your books, you don’t just need a card, you don’t just need expense management, you need all these things to be working in concert, to collect receipts, to match it to books and general ledgers, to collaborate, to have approval flows. Maybe you want integrations to automatically pull certain information through and so we have a lot of tools, deep integrations, few hundred there.
And last, once you have these systems in place, you’ve got the right tools, you’ve got capital, you have your controls, it’s streamlined and fitted to the host of services that your business is using. Ramp then is really able to start going to work, and so it can first save you time by automatically getting rid of busy work, collecting receipts, categorizing expenses, learning from actions that your accounting team takes to speed up month-end close. It’s saving money, we give real time reporting as opposed to delayed reporting that finance teams are usually used to when we have slow bank feeds and wonky integrations between financial tools. We give savings insights, we monitor first to understand what things cost, the prices different companies can pay and actually can show finance teams when there’s better deals available on software and services that their clients.
Well, there’s lots of pieces in there. But I think one question that really jumps out to me is this customer base question. The more you talk about all these different things Ramp does, I think, “Well, that’s great. I should use Ramp for everything.” But that’s a lot easier to do if, say, I’m a startup, and so I could see Ramp being very attractive in that sort of atmosphere. But there’s other situations where, “Well, I already have an existing finance flow. I need a new corporate card, or I’m interested in the saving money pieces.” Then maybe I look at Ramp a little differently and your go-to-market might be different, again the aforementioned land-and-expand model. Number one, what is your customer base like between startups, established companies, SMBs versus large companies? Then number two, do you have a different go-to-market approach for those different categories?
EG: Absolutely we do, and so I would say I’d put it across three core segments, and in terms of by spend basis, it’s split fairly evenly across these three. So first it’s called this micro-SMB. These are totally self-service, we’re working through whether it’s word of mouth, ads, blog posts, referral, discovery, people are signing up through that, there’s generally no sales team associated.
And for these micro-SMBs, does Ramp provide their complete financial needs? I’m a micro-SMB. Can I get rid of QuickBooks if I have Ramp? How extensive is the offering there?
EG: Quite extensive. Where Ramp really shines is it helps for any way that you might need to spend as a small business owner — outside of payroll — Ramp can help and support you. So for example, if you want to spin up corporate cards with controls, so let’s say, first for yourself, you can set limits that you might need both for yourself or for vendors. So let’s say that you’ve got a host of small business tools, you want to give a different virtual card number to different vendors, you can do that and say you can say charge up to this amount but no more than that, and you can even do things like put expirations on it. Do you add employees or contractors? You can issue virtual cards, things like that to make payments.
Once that’s done, you can start to set rules around maybe if you’re in a business operating in the US, the IRS requires receipts for anything above $75. You can build that logic in so Ramp will automatically collect receipts expenses, and so you can do away with tools like Expensify, which might be used for a small business. Bill payments, so let’s say that you need to pay a contractor by ACH or very soon wire, you can upload one or hundreds of invoices all at once, Ramp can automatically pull out details, quantities to make the data entry part fairly automatic, and you can trigger payments that connect and pull through.
Then last for accounting, basically we have logic overlay to all the transactions that come out. We’re orchestrating, collecting receipts, appending accounting information, and you can connect your QuickBooks or Xero or whatever accounting software you use, and then Ramp speeds up basically all the entry to close your books. At least today, we’re not aiming to be in accounting or an ERP but all the details, the orchestration between where and who’s allowed to make purchases? What are the controls on those purchases? Through what form to be able to issue, to generating cash back on it, to later closing the books and insights to help cut your spend as you’re operating over the course of months and years, Ramp can help there. So it’s really all the payments that are coming out of the system outside of payroll.
So looking at it as a micro-SMB, if I say I have American Express, so there’s two issues I see. Number one, what’s the pitch, again, from a micro-SMB perspective, we can get to the larger companies later. What’s the pitch for me to use Ramp, number one and then number two, how does Ramp, especially with micro-SMB’s, get around if at all the credit risk issue? One of the issues why I can’t use most corporate cards is I need some sort of personal guarantee and so in this case, American Express actually works better in that regard. So walk me through that bit.
EG: Yeah, super happy to do that. I think that for startups, it’s really about deploying the most modern and efficient finance stack. First you’ll get all the tools you’ll need to make and operate as small business, so whether it’s corporate cards with working capital terms, cash back, built-in expense management so you can meet your IRS obligations, just good hygiene obligations, your bill payment. So you can replace bill.com, Expensify, corporate card, all that all-in-one you can take care of it in one shot. And you can start to use Ramp to build automations, to collect receipts, to speed up month-end close so you have all your time to be able to focus on growing your core business and you can know that Ramp will go in scale to you as you grow, if that’s your goal. So really it’s about this all-in-one. It’s about modern capabilities, and I can go into some of those. You can one-click block merchants, you have a lot of control —
No, not too much, because you’re not going to make much money on me.
EG: (laughing) That’s okay.
It’s interesting because there’s a very clear, I think, value prop for the smaller you are, it’s almost like the Microsoft proposition. People always think about Microsoft and large enterprises, whereas to me, one of their most compelling markets is all these small businesses in part because they just do everything. They don’t do it perfectly, not necessarily, but you can outsource your IT in a way and what I’m hearing from you is the possibility of outsourcing, if not your accounting, at least a lot of the bookkeeping. So I get that value proposition. But is that a market large enough for what, $8 billion or $9 billion valuation, whatever you are, I might have confused you with one of your competitors. Are you at this level and you’re trying to grow up? Or is this, you think you have an offer and it serves all levels of the market?
EG: It’s interesting, we actually historically have never targeted this market, which I’ll get into a little bit. Historically, we started with this intent on serving the mid-market, companies that have gotten to a little bit larger scale, building tools that helps streamline the workloads. Turned out that coincidentally lots of small businesses wanted this, too.
So you added on that self-serve component over time?
EG: That’s right. That’s exactly right.
Is that unique for Ramp? I think Brex and others are a little more focused on larger entities, whereas this sort of self-service component of Ramp does seem unique. Is that a fair characterization?
EG: I think so. And what I would say is interesting is, we can get into, at some point if it’s interesting, like why is this industry popping up now? Credit cards have been around for a long time.
Go ahead, walk me through this. How do you make money? Let’s start there. How does Ramp offer all these services? Because I can look at your website and say, “Wow, I get all these cool tools and I get them for free.” Presumably they’re not actually for free. How are you actually making money?
EG: They’re totally for free and there’s no data sales, nothing, I’ll tell you about it. So first, the primary business model is the interchange, which for just a simple walkthrough is every time a card is swiped, a merchant receives effectively the vast majority of what was authorized and the remainder is divvied up through all the players that —
Oh, believe me, I’m extremely familiar.
EG: Yes, exactly.
It’s by far my largest expense!
EG: Totally. Most of it goes to the issuer, effectively who initially took the risk, put up the funds and it comes back. It’ll vary by amount for corporate and business. It’s somewhere closer to call it 2.5% ballpark that can come back. So the business model for Ramp is effectively taking that, less what we’re splitting up with the users. And again, today the majority of that is going to customers, we offer 1.5% percent cash back and basically taking that split for both providing software, taking on credit risk, fraud risk, these types of things.
So basically the long and short of it, in exchange for 1% of a company’s purchases, you’ll give them all the software that they want and all the automation that you can build. Which is great because all that for you, of course, it’s upfront costs, but once it’s built, it’s built, you get the zero marginal cost payoff. And then that locks you into, basically, as long as this business is an ongoing entity, you are making money.
EG: I think that’s right. And what I would say is, so long as we’re creating value. I think for me, historically, I think the paradigm in the credit cards industry for the past really thirty years has been, we’re going to try to convince you, some organizations, borderline bribe you, I’d say user card will offer you points, signup bonuses, rewards, travel benefits and the like, which devolved a little bit into a price-based competition. Ramp’s different approach was to say, “What if we use this to create really valuable tools?” Maybe to replace tools that you’re already paying for, to streamline workflows that today are really clunky or to outright start creating value on top of it. Whether it’s helping companies cut their spend in the first place and so more savings in the company early on bringing savings, identify when there’s better prices available and the like and to the extent we’re able to create more value, we can deepen our relationship with customers and have a chance to take a crack at a market that historically really hasn’t changed very much over the past thirty years.
Why now? I mean, because credit card exchange rates have existed for a long time. There’s been this margin available but what has changed such that it’s you and other competitors have emerged over the last few years?
EG: Go back like fifteen years and I think there’s four primary drivers in my view. First is, based on rules at the credit card network level, at the bank level effectively, you have to be a bank in order to run transactions over the Visa, over the MasterCard or other kind of rails. It’s very hard to start a bank, requires a lot of upfront capital.
Right. And to be clear, Ramp is not a bank.
EG: We are not. But for lots of years, historically, you had to figure out some way. And when you look at the last — most of the bank founders died hundred years ago, plus —
Then famously, there’s been like no new banks started in the US since the financial crisis or something like that.
EG: Dwindling, which is actually an important fact that related to how this industry started to come about. Or you were like the founder of my former employer, Capital One, who designed and worked for years and years to convince the bank to spin out part of the organization in order to create what became Capital One. So really, really tough unless you were a bank to be able to even participate in these types of transactions.
Then the financial crisis happened. What you were talking about, there’s a dwindling number from tens of thousands of banks to smaller and smaller through acquisition, bank failures, and the like. Regulators got worried that there would be too few banks systemically in the US to go on and so there was a lot of regulation around Too Big to Fail, trying to support small businesses.
At the time, a lesser discussed act was the Durbin Act, which was related to consumer debit. That is not what we are, but it’s set the stage for a lot of the infrastructure, which is the next point. But effectively, what happened was the regulations set up in such that if you had, I believe, it was under $10 billion in assets, if you were processing card transactions as a small bank, you could get relatively high interchange. However, if you were a large bank, more than that, you would make cents on the dollar functionally creating an advantage for small banks who perhaps could offer more to their customers so they could drive more business to stay at local community banks.
What actually happened? Did customers stay at small community banks? I mean, I know where this story’s going. It’s a great story. So sorry, please continue.
EG: The problem is, that’s great but it’s hard to convince people to move to Kansas or Ohio or wherever these interchange-
Or Utah or Alabama, where I think some of these banks actually are. But, yes.
EG: I grew up in Nevada, I love these places. But it’s easier said than done to get people out there, right? And so you have these small banks and smart people running them thinking, “Okay, well, what do we do about this?” Along the same time, there were a number of companies getting started, which are now pretty important today, who saw an opportunity to work together. One side you’ve covered extensively a little bit different is Stripe through the merchant processing side. The other, so the issuer processor and actually Square did a lot of really interesting work around this in effectively realizing that if they could bring volumes to banks or to customers, offer cards, they could create new products, create new innovations, but if they could effectively bring new volumes and generate a split back to small banks, small banks would suddenly have an advantage. They didn’t necessarily have to take balance sheet risk, they could have new volumes, work with these new players to allow effectively a mechanism for them to issue cards in the first place.
So basically, you had these small banks with a regulatory advantage, but no way to go-to-market. And then you had these big companies like Square and Stripe that had a way to go-to-market, but didn’t have the regulatory capability of being a bank. And so it’s like, “Hey, if we can actually partner, we have this big chunk of interchange that we can split the baby and both benefit.”
EG: Totally and lots of others. The neobanks were a huge part of this story and the like, and so there was this market coming together. The next domino is, you’re a neobank, you’re one of these large market participants, you want to work with a bank, but it turns out that they don’t always have the same engineering capabilities of modern tech companies at your local community bank. This encouraged the creation of folks, whether it was, again, on the merchant side, like Stripe, originally Marqeta, in a large way, Galileo, i2c, these issuer processors and this infrastructure layer. When you look at what most of the old banks were using, whether it’s TSYS, total systems, first data, FIS. Often these were on-premises, very little ability for developers at these companies to interact with the ultimate product and there was a lot of demand from these modern software companies to be able to work and to interact with, let’s say, cards issued by a partner bank. Maybe it’s a Celtic Bank, Sutton Bank, WebBank, you name it, but they wanted to have this feel like a product that a Chime or a Square, something might be like and so these infrastructure players went from small to quite large. And it meant suddenly that if you were a new fintech company there is infrastructure that you could connect into. Willing market participants in standardization deals that if you had the wherewithal to get started and to manage the program to work with these players, suddenly you didn’t need to start your own bank.
So it wasn’t just that you had the banks that had the regulatory advantage, but then you had companies like Stripe, for example, or Marqeta, which I think you started with, that basically presented an API that you could build on. So they abstracted away these banks’ archaic systems and just made it possible that you could spin up Ramp relatively quickly, I mean, you’ve only been around for a couple years.
EG: Exactly. And I’ll tell you that effectively, we went from incorporation to first card process in under sixty days, which was really fast.
That’s incredible. This is so interesting. I’m trying to remember why I haven’t written an article about the Durbin Act yet, because when you talk about regulation and the worry about unintended consequences, the implication is that unintended consequences are always bad. But is there an argument here that this is a case where the unintended consequences were actually phenomenally successful, basically creating the entire modern FinTech industry? Should that be the takeaway?
EG: I would argue that, I would. And look, to be clear, Ramp doesn’t doesn’t operate in this regulated or consumer space. Not at all.
Right! That’s the whole thing. Let me make sure I understand this right. So you had the consumer debit loophole that meant there was a huge amount of money to be made that led to these banks to become white label issuers, basically, for other people and neobanks and things on those lines. That built up the infrastructure, and so then you got companies like Stripe and Square, and you had APIs to build on, and now Ramp comes along. You don’t really take advantage of the consumer debit loophole at all, you take a advantage of the fact there’s an infrastructure that started there and that’s the payoff.
EG: Exactly right. So suddenly there are willing market participants, there’s infrastructure. Last two which is, okay, this industry historically, if you take just the card side alone, high interchange, but no new players. My understanding is AmEx has something like, I think, today 40+% of the corporate card small business market.
What was it two decades ago or ten years ago?
EG: You know, I’ve heard a rumor that it was as high as like high 70%, 80%. I haven’t verified that but maybe someone listening or reading can look and verify.
Rumor has it, yes.
EG: Rumor has it, it was quite high, Visa and MasterCard have come a long way, and very little innovation in this space, it’s hard just to get into it, but how do you make it possible? Businesses were used to getting things on credit, you swiped the card, you pay back a month later. One of the long-standing advantages of banks was that, well, you have deposits. So if you want to allow customers to spend, you can use your balance sheet. The cost of capital is relatively low, which for old startups would be a really tough thing to raise that capital, but suddenly in a near zero interest rate environment and a place where you can, whether it’s within credit facilities with relatively low rates and tap into, suddenly the playing field was more level.
Got it, so that’s the other missing piece, is basically for the last X number of years it’s been trivial to raise capital. I circled back to this question earlier, but how do you handle credit risk for new companies? Basically the macro environment solved that problem for you.
EG: The macro environment solved that. And then the last piece was another infrastructure development, which is the fourth and last reason, and then I think all the pieces are in shape to start Ramp in 2019, which is credit risk. I spent a lot of years at Capital One, and can appreciate it’s really hard to underwrite credit if you have lots of years of lagging indicator. You can have great predictive models, but it takes years and enormous amount of data to have a sense that based on a random data input, is this person going to be good? Is it a fraud, so are you going to default?
However, with services like Plaid, with services like Finicity, it’s suddenly possible for a customer to link a bank account, and then the job is simplified down from “Could you underwrite a complex credit history?” to “Are you willing to underwrite effectively a sum of cash and make the assessment of in 30 days, could this customer pay back this amount?”. So suddenly you had all these pieces to go and effectively have a product that competes with American Express, could get built by a small team with a small amount of capital, and go-to-market in under a year with full financial capabilities, technology capability built by a tech first team.
Is Ramp a charge card or a credit card?
EG: It’s a charge card today.
Got it, so you’re paying it off every month. And so this ties into the, “Hey, if we know how much money’s in your bank account, we can feel comfortable in the amount of latitude that we’re going to give you.”
EG: That’s right. And today, Ramp has extended and evolved out from bank balances to accounting balances to credit history and the like, but it allows us to break this cold start problem of how do you originally underwrite safely?
How much of a risk is the changing interest rate environment, then? If that was an important factor in getting started, you could say on one hand, well, it’s like the Durbin Act, which actually had nothing to do with our business, it just created the conditions so that we could succeed. And it’s the same thing here, the conditions were created, it doesn’t matter now. Or is there sort of a “This is going to be a significant burden”? I’m assuming you raise money from venture capital investors to build software, but the actual risk pool for your customers is going to be some sort of credit facility. So is that going to be an ongoing issue for Ramp in the next couple years?
EG: It’s something worth monitoring, but we’re partnering with great partners. We have today almost a billion dollars in capacity with Citi and Goldman Sachs and others. Because Ramp today offers a relatively short duration product, it doesn’t affect us the way that it might in, let’s say, a mortgage provider.
Right. It doesn’t accumulate that much.
EG: Yeah. And if it’s a 30-day product and your weighted balance is a portion of that, your effective cost of capital is how many times you can turn that capital, and so it’s very small.
Is the risk of a recession and some of your customers going out of business, is that actually a larger risk, then?
EG: Exactly right, and I think it’s the interrelation of how these can come together. A rising interest rate environment may incrementally raise the cost, which may cause some businesses to no longer be viable. Because businesses are no longer viable, they can default. You need to watch the credit risk as people are defaulting. Your growth may slow and could set off — and I think thinking about how these things react is historically where credit-based businesses get into trouble, so they don’t consider the interplay.
So what about going internationally, then? The Durbin Act is obviously a US only thing, all these banks that undergird this neobank Stripe, Square ecosystem, are US-based banks. Whereas in Europe, there’s regulations about interchange rates, for example. How can Ramp, if there’s not that 1% margin available, is it just a charity effort? You’re giving away the software for free to companies there and not making any money? Or how do you think about that?
EG: No, there’s room for viable businesses like Ramp too. I mean, first, I think that the infrastructure changes — this kind of revolution has happened around the world where suddenly it’s no longer just banks that can interact with and move funds. So while these change set up a possibility for people who want to improve financial products —
Right, I mean, Stripe is a worldwide product, even if it was enabled by some piece of regulation in the US.
EG: Exactly right, and we can plug in and tap into it. And so I would say in Europe and Asia, there isn’t necessarily an expectation of cash back or of points, but there is sufficient margin for players to be popping up and scaling all around the world.
So you don’t anticipate charging for your software in that case. It’s more a matter of the go-to-market is you get all these great tools and no one thinks they’re going to get that 1.5% anyway so you can live on the 0.25% or whatever small amount that is.
EG: Yeah. I think that for us, the more value we can create, hopefully we can share and participate, but that’s exactly right.
Is it possible that you do charge in other markets?
EG: I think it’s plausible. I would say it’d be driven by the idea of can we create dramatically more value for customers, and my belief is if we’re able to help companies be dramatically more successful to have a dollar that maybe is spent on a competing card that only went so far but on Ramp, it goes 5% further because we’re showing you the ways that you’re overspending. We’re replacing other sets of software that’s charging you and we’re charging you nothing or we’re charging you some portion of it.
You’ve mentioned that a couple times. Tell me about that, how does Ramp save you money? Walk me through at a very high level because you’ve mentioned this as a benefit the whole time, this should give you a chance to make the case.
EG: First let’s start with the premise of I think it’s actually an afterthought for most providers, people who move funds historically, they’ve been around for hundreds of years. They don’t really care that much about your time.
Right. They give you airplane flights and whatever it might be, which by the way, has not been much of a benefit the last few years!
EG: (laughing) No.
Is there a bit where the American Express value proposition has decreased because there’s been less travel and, oh, by the way, one thing that’s interesting is I think the American Express services got much worse, I mean, just anecdotally speaking. I’m curious if they’re almost in a negative cycle as they’re less of a monopoly or less dominant, there’s less willingness or space to spend on this sort of stuff. I’m far out of field, now I’m just complaining about my credit card. Again, I interrupted you. Continue please, I had to get a little rant in there.
EG: So funny, weird history, we launched the company in February 2020, and we’re really excited, had a great launch. We’re based in New York City, the next week, half the company got sick, we didn’t know why. Three weeks later, we figured out why! The city was shut down and no one was traveling and we learned what this pandemic was. Suddenly the space that was all about travel and entertainment, you think card, it’s going out, it’s getting lunch, it’s traveling, it’s an expense account. You couldn’t do it anymore and so in the context of the pandemic, how the hell did a startup corporate card business grow its revenue 65 times year over year? And the next year grow eight times year over year?
Well, not only were the expense account things much simpler, so if you didn’t have a great expense story yet, it was fine, but also there was a lot more attention being paid to the bottom line as opposed to the top line.
EG: Exactly right.
It’s like “How do we save money?” and so your value prop came through. But walk me through that, how does Ramp save you money?
EG: So first a couple of things. A lot of people think about this from a consumer-only context and let’s run with that. Imagine you had to share your credit card with fifteen cousins or uncles and aunts, and you want the same things, but no guarantees that you may not end up with three, four sets of Netflix subscriptions, a bunch of Spotify’s, different cable subscriptions, things that you could be getting much more efficiently if you were really efficiently working together. Things just happen, and companies are kind of like that. There are people doing their best, trying to do their jobs, build a company, but you don’t always have visibility. You don’t always know what you’re spending on across the company as you start to scale because it’s not your primary directive, you’re trying to grow the company, you’re not thinking always about costs. You don’t always know what things cost, what other companies are getting charged with the rise of SaaS. There’s also the rise of contact sales, and you have no idea if you’re getting a low rate, high rate, terrible rate, wherever it is.
Right, also, you have these self-serve companies that come along and you can just sign up with a credit card and now suddenly you’re paying for something.
EG: Yeah, and it’s like you’re paying for all these subscriptions you’re not using, all kinds of stuff, and also little things like your credit card is, again, back to the original thing, they’re not thinking that hard about what could they be doing to help you spend less. What could the software or the payment platform itself be doing, right? And so the way that Ramp helps is take these on one by one.
It’s first starting to help companies get visibility into what they’re spending money on and show ways to spend less. We find for fast growring companies, they’re paying for lots of duplicate subscriptions. Just like you may be paying for a gym membership or Spotify, something you’re not using, companies do that in a big way. We show that.
We show people when they’re on poor pricing plans. Maybe they’re on monthly, they could be switching to annual because they’re paying for it for five years. Maybe there’s other forms of waste. Next we show companies, we have a service called Procurement, we help the average company cut their software bills by 27% and so we can either do a managed negotiation —
And this is where if you have those contact sales buttons, Ramp basically tells you the price you should actually get.
EG: Exactly. We see thousands of contracts for people and it turns out you’re not always getting the best price and, in fact, it turns out you’re often not. You’re almost always not except for the five or ten contracts your company cares about and so we create visibility, benchmark, can use data as an asset for our customers.
How are you able to use customer data in that way? Is there a concern among your customers that, “Hey, that’s our proprietary data? You’re using it.” How do you straddle that line?
EG: Yeah. I mean, first there’s never sales information, there’s never identity we release and often too, there’s two sets. One is in a managed service of active procurement. There are a number of services that can go and negotiate for and so you could say, “Here’s a contract.” We can go and we have effectively trained negotiators who have access to effectively anonymized data at large about what the services themselves cost. And so it’s never company X is paying X, Y, or Z. That’s never revealed.
You said you have trained negotiators. Does Ramp actually go and negotiate these deals?
EG: That is one of the services that we offer today. Yes.
And is that a value-add service? Do you take a commission on that? How does that work?
EG: Today we don’t, it’s totally free. And a lot of the logic is, first, corporate cards are great business. The hard part is convincing that people should be working with you and so this is something we want to do to make our customers feel really appreciated.
So you find all these duplicate services, you help negotiate better rates, you theoretically save on the automation and all this sort of stuff.
EG: Yeah. Well even on that, this theoretical part is actually an important part. The other thing that we really do, and we talk a lot less about it at this time, there’s a lot of poor, fundamental design flaws in how modern expense platforms are built out. So probably most people have used Expensify or Concur at their jobs and generally, actually, I really don’t like it. It takes a lot of time, I never get my receipts in —
Oh tell me about it, I lost a lot of money while working at big companies because I just would not do it. It’s not my strong suit, to be sure.
EG: All the time! It’s often not worth people’s time. It creates these weird relationships with finance and everything and the like. And the average receipt on these platforms is typically turned in anywhere from two to four weeks after a transaction, maybe in some cases it’s months, and it’s not good for anybody.
On Ramp, the average receipt is turned in thirty minutes after the average swipe. It is radically different and the reason is because we have the infrastructure that approves or declines charges based off of rules set out. We can also text cardholders the second that a transaction occurs. We have integration set up with Amazon, with Lyft, with Gmail so we can automatically pull receipts for companies that want receipts automatically pushed over. It means for the average employee at a company using Ramp, they save about an hour a month. Sometimes it feels like it’s intangibles, but it’s real.
It’s sometimes hard to sell time though, right? How do you get companies to think about that?
EG: That’s for your earlier question of different sales, where it really evolves. For small companies it’s like all the time there’s not one dollar’s going to leave the company unless you look at it, because they’re small they can do it that way. It’s very different for a thousand person enterprises or five hundred person enterprises, suddenly those small little inefficiencies result in multiple people whose actual total job is once a month chasing people down, asking for receipts. It’s Slack messages, its email, it’s follow up with one person to go and get stuff in. It’s a lot of manual work to manually hit, “Oh, UBR* plus a bunch of different numbers. This is Uber, this goes to this spot on the general ledger.” These are actually tasks which are heavily automatable and that software should be doing.
The larger that companies get, the more the value proposition evolves from just saving money, all at one value proposition to really around automation and saving time. It’s helping your company be hyper-performing and automate away tasks that people shouldn’t be doing, and so they can do what you pay them to do, which is maybe they’re in finance, be strategic for employees. I don’t know, close sales, write great code, not stay up to 11:00 PM to get your receipts in once a month.
What’s your go-to-market with these companies? The self-serve market is obvious and makes sense, but the larger a company gets the more you need to make this case to them. Is a lot of your spending now going towards building out a sales team?
EG: That’s right. I would say historically, I don’t think that we hired someone on the sales team until we, as a company had twenty, twenty-five people. Really, a lot of this was on the structure, on the tools, we thought there was a hole in product engineering, but today I think that sales is a very meaningful part of the organization. What we try to do is, we effectively have different segments, micro-SMBs, SMBs where sales starts to get involved, mid-market and then enterprise. For enterprise, that’s a multi-month to even year process where there’s sales development, to have relationship to account executives, to close account managers, to support as companies are scaling and as we’re rapidly releasing software to go and work with them.
Do see yourself as more sort of a classic Silicon Valley approach, where if you can get most of the new companies and grow up with them, that might actually be easier and more sustainable than trying to break into like the established Fortune 500 or something along those lines, or is it all of the above?
EG: Originally, it actually was very different, which I think when we started there was a lot of head scratching of like, “How is Ramp going to be successful?” The logic in the card industry was you had to acquire companies when they could be formed, you had to be someone’s first card, otherwise there’s no difference. I think historically that’s true, all cards were about the same.
Our bet was that these workflows are fundamentally broken. The issue was not, “I can’t get a card”, but it’s like, “Running my business is pain. I want to have more control. I want to cut out the waste and that if you can actually replace three or four sets of software that don’t work well, that are expensive and clunky with the streamline thing, I will upgrade to you.” So Ramp’s original pitch was, “It’s now the pandemic, we’re going to find you savings. We’ll show it to you. By the way, this is an ongoing benefit in your card, we’ll prove it to you, switch or spend over” and now it’s, “You’ve got three, four, five sets of software that don’t work well, don’t interact well, upgrade to Ramp. It’s easy. It takes 15 minutes or less if you’re a small business, if you’re a large business, we can transition and fully map everything over and have you up and running in an hour.”
That’s very interesting. This idea that there was a blind spot in the market because there was an assumption that companies wouldn’t switch. That actually created the opportunity because that ended up not being true. People just weren’t differentiated on the right vectors.
EG: Nobody actually asked finance teams what they needed and what pain they had. It was more of just, “Use my card, I’ve got this sign up bonus or access to a lounge” versus how can I actually, again, back to the intent, we want to save finance teams time and money. The hole was, there was no great product teams, no great engineering teams actually iterating.
How’d you get this insight? I mean, you were the founder of Paribus which was a price-tracking app if I understand it correctly, and you were acquired by Capital One. Was that a matter of, you just had the point-of-view and experience of seeing this pain, or was that just totally separate and didn’t have any sort of impact at all?
EG: Super related. I think had I not started Paribus and sold to Capital One, we never would’ve stumbled into this. It led to two things. First, Paribus is an interesting business today, it’s part of and became the center of what became Capital One Shopping and the insight there was, you can turn data into savings at scale.
But it was on the consumer side. Now you’re doing the enterprise side, basically.
EG: Exactly right. We were bought by the credit card division. We learned the ropes, the in and outs, what was great and some of the misalignments of it. Then we started getting appreciation and I think you talk a lot in some of your posts about really internalizing the dynamics of an industry, what makes certain companies great. We started to see this of American Express. You sort of asked, “Why were they so dominant?” Turned out they had an extraordinary brand, extraordinary marketing, they were great at what they did. Chase had amazing distribution. Capital One was extraordinary at underwriting credit risk, but we really struggled and suffered at times being inside of the bank, because the speed of deployment went from, “We had an idea, we could ship it out.” as an independent company, Paribus, within hours to days to inside of Capital One. There was different experiences where we got really slapped on the wrist and shipping time came down to, went from days to three months.
Three months sounds fast. Yeah. I thought you were going to say like three years.
EG: Sometimes, well, if you’re still there, but it was tough. It was not fun, and I think there’s insight of, “Okay, well, the rest of the world has passed by” and suddenly, going back to the other conversation, it was possible to build products for the first time and interact with money and the movement of funds in these rails and accounting, there is no great products or engineering-led company in the movement of payments. There was great on the payment acceptance sides, but none on really thinking about how can we improve the spending side. I think it allowed us to get appreciation for how to be respectful and thoughtful around regulations, credit, and risk, and the things that these organizations were great at, but see the blind spots and the holes more clearly.
One last question about the rails. What’s your relationship with a company like Stripe? They were the lead investor in at least one of your rounds, they were in another one, they also have a corporate card. It feels like kind of an abandoned product. One of my companies, I think uses the Stripe corporate card, but Ramp almost feels like a sort of Shopify-type relationship where Shopify runs on Stripe, but no one on Shopify actually sees that’s the case. Stripe’s value is being that API interface that sits above the banks.
Is that a good analogy for Ramp? Is Ramp sort of the defacto credit card division of Stripe, like Shopify is Stripe’s e-commerce division? I mean, again, you can’t speak for Stripe, but I’m curious from your perspective. One thing I’ve come to understand about FinTech is there’s not a middleware layer, there’s actually multiple middleware layers. It’s basically at every level of increased abstraction, the speed and ability to innovate increases and the lower you go, the bigger the moat in some respects, because you’re the one actually dealing with all the regulated entities and their backwards systems.
EG: Well said. Yeah, very well said. I think a couple things: one we’re very proud to be able to work with them. My understanding is Ramp is Stripe’s most significant outside investment position and we value the relationship to be able to use the issuing platform, to work with them and upcoming partnerships and work together as well. It’s a deep relationship. I think my mental model around this, I think that is your model, the platform or platform thing is a great one. I think another simple analogy is almost highways versus last mile.
Or like internet backbone versus your local ISP, right? There’s some companies that just move huge amounts of data, but they’re not going to do the customer service of connecting to your house. You need multiple levels.
EG: Yes. It’s almost layers of abstractions. It’s really deeply around the infrastructure of movement of funds. For us it’s, they work with the developer, we work with the finance team and employee base. It’s another level of abstraction and we help them build systems. We plug into accounting, we plug into productivity, security, HRIS systems, you name it to really streamline the workflows that end teams have built upon this infrastructure layer. In some ways we benefit from the quality and upgrades of the platform and can build on really thoughtful, crafted products that have a fast evolution speed.
Because you’re working with a great API, you’re not working with actual banks.
EG: Exactly right. I do think, and it’s been a productive and really symbiotic and great relationship where we can move fast and support companies of all types, and have this wrapper around finance, accounting, expensing, cost reduction, transaction improvement experiences, and Stripe supports on the infrastructure side.
It’s very interesting because I think a lot of people in tech, particularly ones that focus on the consumer side, they get locked into a point of view that integration is always best, and obviously Apple being a preeminent example of this. I think what’s useful about understanding the structure that we’ve talked through is this is a situation where you actually did have an integrated player, which was American Express. The entire reason why there’s more innovation and real competition is because this is a great example modularization provides tremendous benefits because different layers of the stack can do different things and can iterate more rapidly in the end get a better customer experience through a completely different approach.
EG: Completely agree. I mean, I think that’s just right. You allow competitive force to take hold and also you start to — when you’re Stripe, your end customer is a developer, when you’re AmEX, you have a whole host and an ecosystem and you’re thinking about all the players and balancing the needs and not upsetting —
Strategy taxes. Whereas if you’re just at one level of the layer, you could just focus on what you do best.
EG: Strategy tax is right. It’s like, we just want to save the business time and money and it allows us to focus, and to iterate and ship really quickly. I think that’s true in a distributed and more complex system, where it’s broken out. You can get this focus and much faster innovation.
Very good. Well, I thought this was a fascinating conversation. It was great to not just look into your business, but also the broader structural forces that made Ramp possible. I think I’m going to have to talk to some of your competitors soon, but you got first dibs at it. It was super interesting and is good to talk to you.
EG: Awesome. Well, hope this is useful, and thanks for inviting me first. I enjoyed this, I really did, I hope it was interesting.
I think it’s very interesting. I think people are going to be very interested. Thanks for taking the time. I look forward to hearing more about what happens next.
EG: Appreciate it. Thanks, Ben.
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