A startup that could make it easier for more midsize travel
management companies to issue virtual cards has received funding from CSI
Enterprises' financial technology incubator, CSI Kick Start. ConnexPay aims to
launch in November.
The roadblock that ConnexPay aims to fix is a
behind-the-scenes one for travel buyers. Midsize TMCs have a difficult time
getting banks to take on the risk of "acquiring" card transactions for
travel purchases made through those TMCs. Acquiring banks typically take over a
transaction on behalf of a merchant, in this case the TMC, and settle that
transaction with the bank that issued the card. For virtual cards, the TMC also
is the issuer, hence the elevated risk for an acquiring bank to handle the
transaction.
That risk costs money for those TMCs. "It's very
expensive" for the TMC to work with an acquirer, said ConnexPay founder
and CEO Robert Kaufman. Banks may require the TMC to keep cash reserves in the
bank, or the bank might limit the transactions it will process for a TMC, in which
case a TMC might open several accounts with different banks, he explained.
As an alternative, TMCs can prefund the transactions, but
that ties up a lot of their cash flow, he added. "The problem, especially
in the case of air, is that there's a time delay [to process the payment] and
the TMC doesn't receive those funds until best case scenario the next day—or
three days later," Kaufman said. "If the TMC is doing $400 million a
year, a couple of days is $2 million to $3 million … of their personal funds
they need to come up with or raise to run their business." Kaufman said
ConnexPay will target midsize companies, which handle anywhere from $30 million
to $1 billion in total annual bookings.
ConnexPay
intends to remove those headaches by serving as the middleman for acquiring
banks, issuing banks and virtual payment technology. The startup has partnered
with two banks on the acquiring side and one on the issuing side. Meanwhile,
CSI GlobalVCard will generate the virtual card used for each booking made
through the TMC. CSI GlobalVCard is owned by CSI Enterprises, which is providing
the ConnexPay funding.