Fintech in Atlanta #10 - Interview with Charles Freund, EVP Strategy at FLEETCOR
Q&A interview between Charles Freund, EVP Strategy at FLEETCOR and Payments & Cards Network
1. Can you provide some background information on what FLEETCOR does and how it competes in the Fintech space?
FLEETCOR is a global leader in business payments providing a better way for businesses to pay and manage their expenses. Our solutions help businesses automate, secure, digitize, and control their front and back-office payments.
Our e-Payables solutions help businesses save time by automating both domestic and international back-office supplier payments, including multi-currency requirements. Our payment cards give front-line employees the ability to pay for all kinds of expenses, from lodging and other travel expenses, to fuel, tolls, and parking. All while giving businesses control over their employee’s spending.
FLEETCOR competes in the fintech space with specialized solutions that are uniquely designed to help businesses manage and pay specific types of payment categories. For example, our fuel payment cards provide fleet managers with controls to set the quantity and type of fuel each employee can purchase and gives the company insight into their overall fuel efficiency through odometer readings and reporting. Our travel payment products provide best-in-class discounts at hotels for maximum savings and gives travel managers insight into costs per room night for each employee. These unique features and expense controls set FLEETCOR apart from the competition.
2. How have you seen the B2B payments sector evolve and what are the major challenges and opportunities in today’s market?
Today, the B2B payments sector is evolving faster than ever. Banks have historically owned the payments landscape, but now smaller, more nimble fintech companies are disrupting the industry through innovation. These fintechs are launching new products and technologies that aim to serve mid-market and small business customers, segments often underserved by banks. In addition, Fintechs are developing more comprehensive suites of products to better compete with the full-service offerings available to Enterprise businesses. They do this by rapidly building new features into their product offerings, partnering with other fintech companies, or acquiring new companies and technology to enhance their portfolios.
Despite this innovation, many of the same challenges still exist in the market. Businesses make an estimated $170 trillion in payments each year, but the majority of these payments are made with outdated and inefficient methods like cash or check. While modern technologies have been quickly embraced for B2C payments, the B2B industry has lagged behind. Digital payments are much more efficient than traditional methods. The digital nature of payments provides businesses with more expense controls to prevent unauthorized employee purchases. For example, a business can use payment controls to allow only purchases on a payment card for certain types of expenses like Travel & Expense or provide more customized options for your business such as locking down expense purchases to certain fuel types and painting supplies. In addition, digital payments enable better reporting and increased visibility on the back end to help businesses better manage expenses and cashflow, and also prevent fraud.
Companies sticking to the status quo with traditional payment methods are roadblocks to the adoption of new technology. Replacing legacy systems and managing a transition to modern technology can be hard, but the COVID-19 pandemic has actually created an even greater need for digital, contactless payments. Businesses no longer want to be forced to go to the office to input paper invoices into a system or print and sign checks. Businesses want a solution they can use to pay and manage expenses remotely.
3. How has FLEETCOR grown over time and what growth strategies have you implemented to become a global leader in business payments?
FLEETCOR has a remarkable growth story. It began 20 years ago as a $25M company on the brink of bankruptcy and has grown into an S&P 500 leader with over $2.6B in revenues. This has been fueled by a combination of organic growth and acquisitions.
One of the keys to organic growth has been our investment in sales and marketing. We have built an effective sales machine with broad distribution and digital marketing capabilities. This past year, FLEETCOR invested about $250 million in sales and marketing alone. While our organic strategy is constantly evolving to improve sales and distribution, the company is also expanding its reach into adjacent markets. We call this our “Beyond” strategy, which drives growth in two ways. First, FLEETCOR can grow its share of wallet with existing customers by expanding the types of purchases customers can make with their existing payment solutions. For example, in Brazil we took our RFID toll product and expanded the payment network so that our customers RFID toll tags also worked for payment at parking garages, fuel stations and even fast food drive-thrus. Second, we now attract new and different customers with the appeal of this expanded network. In Brazil, we now have a new segment of customers in cities that don’t use tolls but use our RFID payment product for everything else.
A recent Harvard Business Review article presented data that 70-90% of acquisitions fail, but FLEETCOR’s experience is quite the opposite. We have made over 80 acquisitions since our founding in 2000, deploying over $8 billion in capital and transforming the company from a regional fuel card provider into a global leader in business payments.
FLEETCOR acquires companies that have similar business model characteristics, recurring revenue, low capital expenditures, high margins, and a network dynamic that feeds on itself. In addition, we attribute our success in acquisitions to two key factors. First, we have a clear thesis on how we can accelerate growth within an acquired business. We have evaluated and acquired a lot of businesses through the years and have developed a blueprint on how to invest in sales distribution and digital marketing to accelerate growth. Second, we look for assets and opportunities to create revenue synergies across our portfolio. For example, we recently acquired a company in the travel industry that helps airline passengers and crews find hotel rooms. After the acquisition, we were able to switch out the company’s previous method for paying hotels for these room nights with our own internal payment solutions. These two factors have helped FLEETCOR double an acquisitions EBITDA on average within the first two years of ownership.
In the future, FLEETCOR plans to continue growing organically through our “Beyond” strategy and sales and marketing investment, as well as by deploying $1 billion in capital each year on acquisition targets.
4. Why is Atlanta so popular for Fintech companies? What was the catalyst for moving FLEETCOR HQ to Atlanta?
Atlanta has established itself as a booming epicenter for fintech innovation. Back in the early 1900’s, The Federal Reserve opened a bank in Atlanta and experimented with wire transfers. Since then, the region has been focused on digitizing payments, which is a hallmark of FLEETCOR payments solutions. Another reason Atlanta is a hub for fintech companies is the local talent, both from the high density of technology companies in the area as well as the tech-focused universities educating the next generation of leaders.
The greater Atlanta area has been home to FLEETCOR for nearly 20 years. Our CEO Ron Clarke believes the Atlanta business community is the ideal place to build and grow a company, especially a payments company. We are also excited to be a part of “Transaction Alley” and proud to be where nearly 70% of all U.S. payment transactions are processed. With our new headquarters in Buckhead, we are looking forward to acquiring new talent to maintain FLEETCOR growth and industry leadership. As “Transaction Alley” continues to attract and produce highly skilled workers, we have no doubt Atlanta will hold its title as the fintech capital of the world.
5. Where do you see the business payments industry going in the next five or ten years?
In the next five to ten years, we foresee more consolidation in the business payments industry. More incumbents will look to create fuller suites of payment solutions and grow additional pieces of the payments value chain. But more specifically, as a result of COVID-19, we expect an increase in M&A activity following the crisis as company valuations have dropped. This will lead to more consolidation in the fintech industry.
For business in general, we expect to see faster adoption of digital payment methods like tap and go, mobile wallets and cards and accounts payable automation. The inefficiencies of writing checks and handling cash was revealed with the pandemic and many businesses are now determined to find and implement better solutions.