Fintech and insurtech analyst Sarah Kocianski casts her eye over the booming tech market for people in charge of business purse strings.
Chief Financial Officers (CFOs), or those without the title who manage a company’s finances, have always had a tough job. Having to tell people they can’t have shiny new things never makes you popular. But in this economic climate, their role has gotten even harder.
Throughout 2023, there are going to be far more “nos” to requests than in 2022. If anything, CFOs will be forced to make unpopular cuts. All while keeping an ever more eagle eye on outgoings and cashflow.
Many will also be making significant business model changes as they adapt to market pressures. CFOs need extra help, and with the option of hiring more people off the table for most, they are turning to technology.
An upward trend
The popularity of CFO-focused technology among investors kicked off during the heady days of 2021, with companies in the space raising $2.8 billion. That’s a $0.7 billion increase on the year before, according to Dealroom.
This pattern continued through 2022, with $2 billion raised up to the end of Q3, bucking the wider trend of investors pulling back in most areas of fintech — and suggesting interest in the space is not a flash in the pan.
I’m far from the first person to think “CFO tech” is a trend to keep an eye on through the next 12 months, but here’s my take on areas that most warrant close attention.
Accounting and Bookkeeping
Using technology to balance the books is hardly a hot new concept. Xero, well-known to businesses of all sizes, was founded in 1998. QuickBooks is of a similar age, and since its acquisition by Intuit, offers a plethora of financial software options to customers.
However, these tools are overly complex for a lot of smaller businesses and many don’t have the resources to use them efficiently — Xero and QuickBooks still require manual inputting. Startups have spotted that gap, and begun offering more user-friendly, tailored propositions.
For the smallest businesses, bookkeeping and/or accounting tools tied to a business banking proposition have boomed in popularity. Digital-only bank Starling offers a bookkeeping feature as part of its Business Banking account, for example. This records incomings and outgoings, translates tax requirements and allows data export for ease of transfer to tax authorities or accountants. It’s one of the key reasons the bank currently holds 9% of the SMB banking market in the UK.
Coconut, meanwhile, targets freelancers. It keeps expenditure and income in one account, providing invoice and management services, along with automated support with filing tax returns.
These are just two examples among many in what is a relatively busy space. While demand for such services is increasing, it’s unlikely all the companies operating today will continue to do so independently. We will see some fall away, while others will be acquired by companies in adjacent spaces such as banking, looking to offer greater value to their customers.
Having an accurate picture of a company’s cashflow has become imperative for CFOs as economies wobble — Excel spreadsheets will no longer cut the mustard. As a result, technology-based cashflow management solutions, which have been around a while, are rising in popularity.
One shining example in this space is Fluidly, founded in 2017, which automates much of the cashflow forecasting process. It enables faster provision of an accurate, real-time picture of a company’s financial position. Its appeal, and companies’ need for such services, was evidenced by its acquisition by commercial lender OakNorth in late 2021 to meet demand from the bank’s customers.
In the US, Financial Planning and Analysis (FP&A) specialists have also seen an increase in interest. One example is Cube, which raised $30 million mid-2022 and serves an impressive range of other fintechs, including Masterworks, Acorns and Wealthfront.
These companies are established, but they can expect greater competition as others enter the cashflow management arena, spurred on by demand and the willingness of investors to back the space. The new entrants will target specific business segments, focusing on the needs of retailers or the beauty industry, for example.
Additionally, similarly to the situation with accounting software providers, areas like business banking will face greater demand from customers for help managing their businesses. This will spur greater merger and acquisition activity following on from the OakNorth/Fluidly deal.
Corporate Cards and Expense Management
Corporate cards and expense management is perhaps the hottest segment of the “CFO tech” area: businesses operating here have attracted significant investment and media attention. That’s partly because they offer a service that’s easily understandable, making coverage easy, and partly because they tackle a pain point many people understand — who hasn’t looked upon a pile of crumpled paper receipts with dread at the end of the month?
The likes of Brex and Rho in the US, and Spendesk and Soldo in Europe are among the companies to have seen success in tackling the issue. For evidence, Brex was last valued at $12.3 billion, while Spendesk reached unicorn status around the same time. All offer physical and digital cards tied to apps that offer automatic spend controls and expense reconciliation. They make the job of tracking employee expenditure, and ensuring it’s in line with company policies, far easier for CFOs.
However, this is an area that’s become increasingly crowded, so companies wanting to thrive will need to think about how to stand out. We will see some expanding into adjacent areas; Brex has already moved into offering business banking and lending, for example. Others will follow the same path suggested for those in the cashflow management space, and narrow their focus to just one industry.
Managing payroll can take up a prohibitive amount of time, and it’s something that no-one wants to get wrong given the cost of living is top of everyone’s minds. Paying someone too little, late, or not at all is more likely to have a materially negative effect on their lives at the moment.
That’s why companies that can automate the manual processes associated with payroll and provide more options to employees are popular. And getting more so.
Particularly timely are those that allow employees to draw down salaries on-demand based on the days or hours they’ve worked. Wagestream is one example. Its customers include Bupa and Pizza Express in the UK, and Burger King in the US, and it attracted $175 million investment last year.
Those focused on automation include Cloudpay, which evidenced growing interest in the space by raising $50 million in 2022, despite having been founded in 1996. Investors commented that they were drawn to the company thanks to its impressive year-on-year growth. Pento is a newer kid on the block, but claims to enable “80% less time” spent on payroll thanks to its technology.
Innovation in payroll will continue as companies seek to improve employee morale and find efficiencies. Solutions that combine payment with non-monetary benefits are likely to see greater interest.
CFO tech ain’t going anywhere
The areas outlined here are just a few where technology is making CFOs’ lives easier, there are many others of interest to be explored. What’s key, however, is that given the critical role CFOs play within businesses, and therefore the wider economy, companies that can support them through difficult times will remain popular and worth a closer look.
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