The tools that exist today for tracking and managing financial operations are outdated. Furthermore, payment complexity is increasing as businesses become global. Large companies try to keep up by creating homegrown solutions with many engineers and operations specialists. For example, companies like Airbnb and Uber have 200+ employees tracking their real-time financial health. Then there are the breakdowns in these payment operations, such as when Citibank accidentally wired $900M to a hedge fund.

Companies need better software to manage day-to-day finance

<ul><li>Payouts send money outside of the business, such as bank wires and ACH, paying vendor invoices, creating transaction logs, etc.</li><li>Payins bring money into the business by accepting various payment methods, optimising payment routes and authorisation rates, identifying fraud and failure, allowing for rewards, gift cards, payment splitting, etc.</li></ul> The payment acceptance methods - credit cards, e-wallets, crypto, gift cards, bank transfers - differ by company and geography and can take months to implement. For payouts, a bank transfer involves a series of manual approvals.

Payins and payouts are mostly manual

Financial Operations (FinOps) could be an emerging software category with a huge opportunity to rethink the way businesses manage their money. As a result, it is expected that a number of companies will build solutions. Both payins and payouts can organise workflows into layers on top of the existing primitive workflows. These layers are:<ul><li>Moving payments</li><li>Ledger/reconciliation to record payment entries and connect to the ERP.</li><li>Dashboard - the ability to see and search transactions</li><li>Intelligence - the ability to set alerts and catch errors.</li></ul>

The opportunity to build

Building in this category requires building trust and reducing friction in the onboarding. The product needs to be highly reliable and likely needs to be added on top of existing products at first. Setup cannot be overly complex, as this is what the buyer wants to avoid. To get to market, early design partners and product marketing are critical. Leadership across the company should find it easy to understand and get insights into the real-time financial health of the company.

Building principles

If money is the lifeblood of business, the inflows and outflows of revenue and expenses are like the heartbeat of a company. And while tracking and managing these financial operations are critical to keeping a business healthy, the tools that exist today are incredibly antiquated. Meanwhile, payment complexity is increasing as businesses become more global and seek to add new payment methods every day.To keep up, many of the largest companies have invested in home grown solutions and rely on an army of engineers and operations specialists. Companies like Airbnb and Uber have teams of 200+ simply to keep track of their real-time financial health, both cash on hand as well as payables/receivables.Worse yet, breakdowns in these payment operations can have massive consequences. Last year, Matt Levine famously wrote about the payments debacle where <a href="https://www.bloomberg.com/opinion/articles/2021-02-17/citi-can-t-have-its-900-million-back" dir="ltr">Citibank wired $900M</a> to a hedge fund — by mistake. The cause? A set of email approvals and legacy software that didn’t catch the error. And this isn’t an isolated instance — companies spend millions of dollars per year on audits and many more on fines and lost revenue for not tracking payments correctly.Companies need (and deserve) better software to manage day-to-day finance workflows and <a href="https://a16z.com/2020/04/15/new-cfo-tools/" dir="ltr">make CFOs more strategic</a>. We believe that “financial operations” (FinOps) is an emerging software category with a massive opportunity to rethink the way businesses manage their money by streamlining, automating, and optimizing existing work while giving the entire organization a real-time view of a business’s financial health.<h3>Payins, Payouts — What’s so complex about payments?</h3>At its core, there are two money movement workflows, the majority of which are manual today.<UL><LI>Payouts send money outside of the business, including sending money via bank wires and ACH to pay vendor invoices or make disbursements to customers, generating invoices, creating transaction logs, managing pooling vs. custody account flows, and reconciling to the accounting systems/ERP. </LI><LI>Payins bring money into the business by accepting and adding different payment methods; orchestrating and optimizing payment routes and authorization rates; identifying cases of fraud and failure; allowing for rewards, gift cards, and payment splitting; and reconciling to the accounting systems/ERP.&nbsp;</LI></UL>For payins, payment acceptance methods — credit cards, ewallets, crypto, gift cards, merchant acquirers, bank transfers — differ by an individual company’s needs as well as by geography. Adding new methods can take weeks or months of engineering time to implement. For example, a consumer marketplace may want to accept a new local payment type or e-wallet as they expand into a new market or geography (e.g., Ideal in the Netherlands, or Grab’s consumer wallet in Southeast Asia). This isn’t as simple as flipping a switch in Stripe or Adyen, and it often requires a team of engineers to integrate a payment acquirer, embed it within the checkout flow, and tie it to the ERP.For payouts, initiating a bank transfer can often mean a complex series of manual approvals sent via emails or CSV files to the bank and then tracked in spreadsheets or software developed 20 years ago (at best). The typical workflow for a fintech lender might include a finance team verifying a loan amount, batching all disbursements into a single daily request list, and then sharing that list with a bank via CSV upload or email/fax. Someone in finance then needs to check with the bank to verify that the payment went through, and manually log that payment disbursal into an internal spreadsheet.For both payins and payouts, transactions are often reconciled manually, with stale data and no single source of truth. While the ERP is a system of record for the company, it doesn’t have — and isn’t going to build — the capabilities to track real-time financial health. With very limited intelligence around payments, companies are losing out on revenue from failed payments and declines, but they don’t know how to maximize success rates across processors or how they should configure their re-try strategies, when one fails, or to identify insufficient funds for ACH payments for a particular bank account. Nor can they benchmark performance to see how authorization rates compare against the market.<h3>The Opportunity to Build</h3>The opportunity to build payments software is deceptively large. This isn’t just one company — we expect to see a number of companies build solutions, and potentially even systems of record, for payins and payouts as well as regional approaches across geographies.Fundamentally, the payin stack and the payout stack focus on different buyers and partners. The payouts stack connects to the company’s banks, and the buyer is typically on the treasury side. On the payins side, the software needs to integrate into and maintain connections into a number of gateways, and the buyer is more likely from the product management side than the finance side.For both payins and payouts, the current workflows around payments can be organized into layers on top of the existing “primitives,” which are payment methods like bank transfers (e.g. wire, ACH), card payments, e-wallets, as well as payments-adjacent tools (e.g. fraud detection tools, compliance, authentication, tokenization) that influence whether payments proceed. These layers are:<UL><LI>Moving payments – enables programmatic movement of money</LI><LI>Ledger/reconciliation – the recording of the payment entries and connection to the ERP</LI><LI>Dashboard – enables the ability see and search payments traffic (e.g. by country, processor/network/bank, customer type) and</LI><LI>Intelligence – offers the ability to set alerts and catch errors, and provide analytics and insights around performance, how to optimize payments, and maximize success rates. This is likely combined with better data (e.g. BIN lists) and benchmarking to understand how authorization rates compare.</LI></UL>Each layer builds on the layer below it, and the data generated and actions taken there. Together, they create the opportunity for new software to replace existing manual work.<img src="https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?resize=1024%2C671&amp;ssl=1" alt="" width="534" height="349" srcset="https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?resize=1024%2C671&amp;ssl=1 1024w, https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?resize=300%2C197&amp;ssl=1 300w, https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?resize=768%2C503&amp;ssl=1 768w, https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?resize=1536%2C1006&amp;ssl=1 1536w, https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?resize=125%2C82&amp;ssl=1 125w, https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?resize=504%2C330&amp;ssl=1 504w, https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?resize=962%2C630&amp;ssl=1 962w, https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Opportunity-to-Build.png?w=2000&amp;ssl=1 2000w">The opportunity to build here also differs by geography. Different local payment methods, regional ERP systems, and banking systems and regulations surface different product requirements. In Latin America, fraud rates are high, therefore improving payment authentication (routing to the payment provider with the highest acceptance and accurate fraud risk assessment for a particular transaction) is most attractive. In Europe and Asia, managing a larger number of payment methods is core functionality. If the technology is involved in the payments flow, the company likely needs a money transmitter license (which are also granted at the local and regional level and can take months to procure). This all translates into different products for Latam, North America, Europe, Asia Pacific, Africa, etc.<img src="https://i2.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2.jpg?resize=1024%2C518&amp;ssl=1" alt="" width="534" height="534" srcset="https://i0.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2-scaled.jpg?resize=1024%2C518&amp;ssl=1 1024w, https://i0.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2-scaled.jpg?resize=300%2C152&amp;ssl=1 300w, https://i0.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2-scaled.jpg?resize=768%2C389&amp;ssl=1 768w, https://i0.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2-scaled.jpg?resize=1536%2C777&amp;ssl=1 1536w, https://i0.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2-scaled.jpg?resize=2048%2C1036&amp;ssl=1 2048w, https://i0.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2-scaled.jpg?resize=125%2C63&amp;ssl=1 125w, https://i0.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2-scaled.jpg?resize=590%2C299&amp;ssl=1 590w, https://i0.wp.com/a16z.com/wp-content/uploads/2021/11/Product-Requirements-by-Region-2-scaled.jpg?resize=1120%2C567&amp;ssl=1 1120w"><h3>Building Principles</h3>Building trust and reducing friction in onboarding are critical to building successfully in this category. The product needs to be reliable given this is critical infrastructure (and trust can only be earned once). Relatedly, the product wedge also can’t create a single point of failure for the customer and likely has to be additive on top of existing products to start, not a replacement of existing infrastructure.Setup cannot be overly complex as many legacy accounting and treasury management systems require complex setup, integration, training and maintenance, which the buyer wants to avoid. The finance team should be able to connect their payment rails on both the payin (e.g. payment gateways) and payout (e.g. existing bank relationships) and then customize their routing needs to suit their operational workflows or end customers without needing much, if any, engineering resources. No-code/low code or simple tools that enable easy customization work best.To get to market, early design partners are critical, and lighthouse logos can signal trust to prospective customers. Product marketing is also critical to get right. This is not a set of problems that everyone across an organization is familiar with. Product marketing should be communicated in simple terms and as a revenue and business enabler (e.g. onboard more customers with a new payment method). And that then should be backed by a product that makes it simple for leadership across the company to understand, and get insights into the real-time financial health of the company, and potentially even replace the company’s ERP.The need for a new generation of FinOps software is only increasing as companies continue to expand globally and new payment methods are created. This infrastructure will be critical to understanding a company’s real-time financial health and empowering the CFO (and their organization) to become more strategic. It’s time to build new payments infrastructure — one that delivers a real-time system of record, can automate manual workflows, and deliver unique insights and organizational intelligence.***The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/.Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.<div>
 November 16, 2021 </div>

As companies continue to expand globally and new payment methods are created, there is an increasing need for a new generation of  “financial operations” (FinOps) to help businesses manage their money.

“Financial operations” (FinOps) is an emerging software category with a massive opportunity to streamline, automate, and optimize how we move money, while giving the entire organization a real-time view of a business’s financial health.

Stashed ideas

If money is the lifeblood of business, the inflows and outflows of revenue and expenses are like the heartbeat of a company. And while tracking and managing these financial operations are critical to keeping a business healthy, the tools that exist today are incredibly antiquated. Meanwhile, payment complexity is increasing as businesses become more global and seek to add new payment methods every day.

To keep up, many of the largest companies have invested in home grown solutions and rely on an army of engineers and operations specialists. Companies like Airbnb and Uber have teams of 200+ simply to keep track of their real-time financial health, both cash on hand as well as payables/receivables.

Worse yet, breakdowns in these payment operations can have massive consequences. Last year, Matt Levine famously wrote about the payments debacle where <a href="https://www.bloomberg.com/opinion/articles/2021-02-17/citi-can-t-have-its-900-million-back">Citibank wired $900M </a>to a hedge fund — by mistake. The cause? A set of email approvals and legacy software that didn’t catch the error. And this isn’t an isolated instance — companies spend millions of dollars per year on audits and many more on fines and lost revenue for not tracking payments correctly.

Companies need (and deserve) better software to manage day-to-day finance workflows and <a href="https://a16z.com/2020/04/15/new-cfo-tools/">make CFOs more strategic </a>. We believe that “financial operations” (FinOps) is an emerging software category with a massive opportunity to rethink the way businesses manage their money by streamlining, automating, and optimizing existing work while giving the entire organization a real-time view of a business’s financial health.

Payins, Payouts — What’s so complex about payments?

At its core, there are two money movement workflows, the majority of which are manual today.

<ul><li>Payouts send money outside of the business, including sending money via bank wires and ACH to pay vendor invoices or make disbursements to customers, generating invoices, creating transaction logs, managing pooling vs. custody account flows, and reconciling to the accounting systems/ERP. </li><li>Payins bring money into the business by accepting and adding different payment methods; orchestrating and optimizing payment routes and authorization rates; identifying cases of fraud and failure; allowing for rewards, gift cards, and payment splitting; and reconciling to the accounting systems/ERP.  </li> </ul>

For payins, payment acceptance methods — credit cards, ewallets, crypto, gift cards, merchant acquirers, bank transfers — differ by an individual company’s needs as well as by geography. Adding new methods can take weeks or months of engineering time to implement. For example, a consumer marketplace may want to accept a new local payment type or e-wallet as they expand into a new market or geography (e.g., Ideal in the Netherlands, or Grab’s consumer wallet in Southeast Asia). This isn’t as simple as flipping a switch in Stripe or Adyen, and it often requires a team of engineers to integrate a payment acquirer, embed it within the checkout flow, and tie it to the ERP.

For payouts, initiating a bank transfer can often mean a complex series of manual approvals sent via emails or CSV files to the bank and then tracked in spreadsheets or software developed 20 years ago (at best). The typical workflow for a fintech lender might include a finance team verifying a loan amount, batching all disbursements into a single daily request list, and then sharing that list with a bank via CSV upload or email/fax. Someone in finance then needs to check with the bank to verify that the payment went through, and manually log that payment disbursal into an internal spreadsheet.

For both payins and payouts, transactions are often reconciled manually, with stale data and no single source of truth. While the ERP is a system of record for the company, it doesn’t have — and isn’t going to build — the capabilities to track real-time financial health. With very limited intelligence around payments, companies are losing out on revenue from failed payments and declines, but they don’t know how to maximize success rates across processors or how they should configure their re-try strategies, when one fails, or to identify insufficient funds for ACH payments for a particular bank account. Nor can they benchmark performance to see how authorization rates compare against the market.

The opportunity to build payments software is deceptively large. This isn’t just one company — we expect to see a number of companies build solutions, and potentially even systems of record, for payins and payouts as well as regional approaches across geographies.

Fundamentally, the payin stack and the payout stack focus on different buyers and partners. The payouts stack connects to the company’s banks, and the buyer is typically on the treasury side. On the payins side, the software needs to integrate into and maintain connections into a number of gateways, and the buyer is more likely from the product management side than the finance side.

For both payins and payouts, the current workflows around payments can be organized into layers on top of the existing “primitives,” which are payment methods like bank transfers (e.g. wire, ACH), card payments, e-wallets, as well as payments-adjacent tools (e.g. fraud detection tools, compliance, authentication, tokenization) that influence whether payments proceed. These layers are:

<ul><li>Moving payments – enables programmatic movement of money </li><li>Ledger/reconciliation – the recording of the payment entries and connection to the ERP </li><li>Dashboard – enables the ability see and search payments traffic (e.g. by country, processor/network/bank, customer type) and </li><li>Intelligence – offers the ability to set alerts and catch errors, and provide analytics and insights around performance, how to optimize payments, and maximize success rates. This is likely combined with better data (e.g. BIN lists) and benchmarking to understand how authorization rates compare. </li> </ul>

Each layer builds on the layer below it, and the data generated and actions taken there. Together, they create the opportunity for new software to replace existing manual work.

The opportunity to build here also differs by geography. Different local payment methods, regional ERP systems, and banking systems and regulations surface different product requirements. In Latin America, fraud rates are high, therefore improving payment authentication (routing to the payment provider with the highest acceptance and accurate fraud risk assessment for a particular transaction) is most attractive. In Europe and Asia, managing a larger number of payment methods is core functionality. If the technology is involved in the payments flow, the company likely needs a money transmitter license (which are also granted at the local and regional level and can take months to procure). This all translates into different products for Latam, North America, Europe, Asia Pacific, Africa, etc.

Building trust and reducing friction in onboarding are critical to building successfully in this category. The product needs to be reliable given this is critical infrastructure (and trust can only be earned once). Relatedly, the product wedge also can’t create a single point of failure for the customer and likely has to be additive on top of existing products to start, not a replacement of existing infrastructure.

Setup cannot be overly complex as many legacy accounting and treasury management systems require complex setup, integration, training and maintenance, which the buyer wants to avoid. The finance team should be able to connect their payment rails on both the payin (e.g. payment gateways) and payout (e.g. existing bank relationships) and then customize their routing needs to suit their operational workflows or end customers without needing much, if any, engineering resources. No-code/low code or simple tools that enable easy customization work best.

To get to market, early design partners are critical, and lighthouse logos can signal trust to prospective customers. Product marketing is also critical to get right. This is not a set of problems that everyone across an organization is familiar with. Product marketing should be communicated in simple terms and as a revenue and business enabler (e.g. onboard more customers with a new payment method). And that then should be backed by a product that makes it simple for leadership across the company to understand, and get insights into the real-time financial health of the company, and potentially even replace the company’s ERP.

The need for a new generation of FinOps software is only increasing as companies continue to expand globally and new payment methods are created. This infrastructure will be critical to understanding a company’s real-time financial health and empowering the CFO (and their organization) to become more strategic. It’s time to build new payments infrastructure — one that delivers a real-time system of record, can automate manual workflows, and deliver unique insights and organizational intelligence.

The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

Bite-sized knowledge
to upgrade
your career

How to Move Money in the 21st Century

Companies need better software to manage day-to-day finance

Payins and payouts are mostly manual

The opportunity to build

Building principles

IDEAS ABOUT

MORE LIKE THIS

Find the Best Accounting Software for Your Business - business.com

How to Start Managing Your Money, For Those Who Never Learned Growing Up

How financially literate are you? 3 things you should know about your money

It's time to

READ

LIKE

A PRO!

Bite-sized knowledgeto upgradeyour career

How to Move Money in the 21st Century

Companies need better software to manage day-to-day finance

Payins and payouts are mostly manual

The opportunity to build

Building principles

IDEAS ABOUT

MORE LIKE THIS

Find the Best Accounting Software for Your Business - business.com

How to Start Managing Your Money, For Those Who Never Learned Growing Up

How financially literate are you? 3 things you should know about your money

It's time to

READ

LIKE

A PRO!

Bite-sized knowledge
to upgrade
your career