Texas bank is taking aim at businesses' 'chaos spend'

Texas Capital Bank in Dallas is partnering with a New York-based fintech to give small-business clients the capability to deliver virtual credit cards to employees and contractors. The bank is touting the computer-generated cards as a handy tool businesses can use to help rationalize their payment processes.

Extend, Texas Capital's fintech partner, is no stranger to banks. In December, it announced links with HSBC, and before that BMO Financial Group and Bank of the West. The Montreal-based BMO completed its $16.3 billion acquisition of Bank of the West in February.  Extend also works with the $154.5 billion-asset Regions Financial in Birmingham, Alabama; the $96.4 billion-asset City National Bank in Los Angeles and the $44.3 billion-asset Pacific Western Bancorp, also headquartered in Los Angeles.

At $28.5 billion of assets, Texas Capital is significantly smaller than those banks. Co-founder and CEO Andrew Jamison said Extend's goal is to be able to partner with institutions of all sizes — including community banks and credit unions. To that end, the six-year-old company is working to make its installation process as effortless as possible.

"It's really critical for us to be able to offer these services in such a way that we don't rely on [financial institution clients] having to do any technology work because they don't have the resources," Jamison said Monday in an interview. Smaller institutions "have the financial budget. What they don't have is the people."

Extend completed the Texas Capital installation in under six months, its quickest ever, Jamison said. The two firms announced their partnership Tuesday in a press release.

Extend

For Texas Capital, the goal was to provide small-business clients access to a platform offering the means to streamline purchasing and billing. Clients "want the ability to issue virtual cards to employees without all the challenges that come from sharing physical cards," Nancy McDonnell, head of treasury solutions, said Tuesday in the press release. "By adding Extend … Texas Capital can deliver innovation that makes a positive, immediate impact on how our clients manage spend."

Beyond the obvious benefit of making it easier to put a credit card in the hands of an authorized user, Extend makes it possible for companies to define usage parameters, including a credit limit and expiry date, to limit fraud. At the same time, it simplifies bookkeeping through embedded metadata that can guide a company's financial professionals in classifying expenses. "That can enrich every transaction, so when they see a statement they can very quickly parse it out, because everything is already broken out," Jamison said.

Extend offers continuing support to end-user businesses, Jamison added.

Texas Capital testified to the importance of the accounting function in the press release announcing its partnership with Extend, noting "most companies can't account for 20% of their spending until it's already gone." Jamison referred to the phenomenon as "chaos spend; 20% of your invoices, 80% of your headaches."

Anna Kooi, financial services industry leader for the Milwaukee-based national consulting firm Wipfli, said small- and medium-size companies struggle to reconcile what she characterized as high-volume, low-value payments. "Whether it's employee expense reimbursement or even smaller vendor payments. … It's definitely a frustration for a lot of small- and medium-size businesses," Kooi said. 

Payments

Lessons from Canada's struggles with faster payments

June 26, 2023 2:35 PM

In its 2023 Spend Management Trends report, Emburse, a Los Angeles-based company specializing in corporate expense management, identified what a spokesperson termed "unmanaged spend" as "one of the top issues companies of every size deal with." Emburse surveyed more than 500 finance professionals for the 2023 report, its 10th year of documenting Spend Management Trends. Respondents cited lost or missing receipts, along with the difficulty of reconciling data, as major pain points driving businesses' migration to digital payment solutions — such as virtual credit cards.

"Anything that will allow [businesses] better insights, allow faster oversight on the spend and decreased cost will help them," Kooi said. "We've been advocating for our clients the use of automation in many of these processes like this, to help them not only streamline expenses, but more importantly to add more control and process improvement." 

While Texas Capital represents the fourth bank to partner with Extend in less than eight months, a truer measure of the company's success is the number of businesses that ultimately opt to adopt it, Jamison said, adding that more users will translate to additional deals involving community banks. In 2022, Extend served more than 5,000 clients, processing in excess of $3.8 billion in charge volume. A British research firm, Juniper Research, forecasts the number of virtual card transactions will top 120 billion in 2027, growing more than 300% from the 22 billion virtual-card transactions logged in 2022. In the U.S., Juniper predicts revenue from virtual card activity will reach $71 billion by 2027.

While businesses are currently the biggest users of virtual cards, Jamison said he would eventually like to market a virtual-card product to consumers. "Imagine kids going off to college or family members living across the country. There's plenty of reasons why I might want to send a card to my kid, my sister or my parents," Jamison said.