Mercury Launches Corporate Charge Card, Enters Crowded Fintech Field That Includes Brex and Ramp

After three years of offering banking services to startups, San Francisco-based Mercury is launching a business credit card called IO. The business card market is an increasingly crowded field of fintech with companies including Brex, Ramp, Divvy and Rho all competing to leverage technology to offer better business finance tools, including cards.

Since its founding in 2017, Mercury’s plan has been to offer smaller startups their most basic financial needs — a bank account — first, then roll out more advanced products as customers’ 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 grown its customer base rapidly, from 45,000 businesses by the end of 2021 to 80,000 today. The customers tend to be small companies — only about 2,000 of them have more than $1 million in their accounts. The goal of Mercury’s IO card is to serve startups that are often too small to qualify for existing corporate card programs or, if they do qualify, receive insufficient credit lines.

“Our approach to it has always been about how we serve the smallest customers from day zero,” says Immad Akhund, the 38-year-old founder and CEO of Mercury. “We need to be able to support customers when they are very small, so we built our processes to scale from the smallest customer to the largest.”

Earlier this summer, business card competitor Brex announced it would close its SME accounts as it shifted its focus to serving corporate customers, excluding venture-backed startups. Rho’s focus is mid-sized companies with revenues between $10 million and $1 billion. Ramp targets a wide range of businesses from small to medium-sized to corporate customers.

Before founding Mercury, Akhund started two other companies and served as a part-time partner at prominent startup accelerator Y-combinator, which has helped launch businesses such as Airbnb, Coinbase and Dropbox.

“As an entrepreneur, I was very frustrated with the banks we had to use,” says Akhund. “The products hardly worked, always broke, had a lot of fees, and customer service was very difficult to use. So all these frustrations that everyone has with banks – I couldn’t see why we couldn’t do better.”

The IO card gives 1.5% cash back on all purchases, without requiring an annual fee or personal guarantee from a business owner. Mercury customers can issue corporate cards to their employees for expenses ranging from business utility subscriptions to travel, and the cards also enable spending controls such as customizable limits on an employee-by-employee basis.

IO cardholders are responsible for paying off their bill monthly – it is not a revolving credit instrument. For now, Mercury funds the cards, which are usually paid back within 15 days, using its own balance. The company has enough cash on hand to cover short-term expenses, says Akhund, but the next phase of growth will likely involve working with a bank to finance this gap.

As businesses scale and their expenses grow, they need corporate cards for employees to cover business expenses such as travel. For decades, this market was dominated by AmEx, which provides elegant 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 spending management tools or more flexible card options.

Brex and Ramp, two of the bigger names in the area, launched their corporate cards in 2018 and 2020 respectively. Rho launched its corporate card last year. In January, Brex closed a funding round at a $12.3 billion valuation, and two months later, Ramp secured an $8.1 billion valuation. While competitors like Ramp and Brex launched with a business card and then added features like budget management tools, Mercury started with the bank account. Brex and Rho offer business bank accounts, but Ramp does not.

Starting with a bank account gives Mercury a clearer insight into the customers’ finances, which allows the company to make more informed credit decisions, says Akhund. To extend credit, business card issuers often require businesses to prove a certain amount of cash on hand to qualify. Mercury considers both cash and historical data from existing customer accounts to determine creditworthiness. Akhund estimated that a company’s total card limit would typically be 20% of the account balance.

Mercury customers must have $50,000 in their accounts to qualify for the corporate card, lower than Ramp or Brex’s minimum balance of $75,000 and $100,000 respectively (for non-venture funded companies). AmEx business card clients must have at least $1 million in an associated business bank account to qualify and receive a limit of up to 10% of the balance in that account. Fintech’s lower qualification requirements compared to AmEx reflect their focus on earlier-stage businesses.

Although it has been a tough year for fintech companies, with shrinking valuations and staff reductions, Akhund claims he is not worried. Last year, Mercury brought in $15 million in revenue, and the July 2021 fundraising valued the company at more than 100 times revenue. That’s a high valuation that will be hard to live up to, but Akhund says the company still has $90 million in cash from its July 2021 $120 million fundraising. That means, like many fintech companies, Mercury can likely wait a while before it needs to raise money again, thus averting a dreaded “down round”, when a startup needs to raise money at a lower valuation.