Compared to developed markets in the United States and Europe, small and medium-sized businesses (SMBs) in the Middle East and North Africa region, from a building materials company or a paint manufacturer to a logistics or outdoor signage firm, all have a pain point when it comes to digitizing their spend management process.
“The common theme we noticed across every company was the fact that each one of them would maintain a cash vault at their offices and distribute loose cash to employees on a daily basis,” Mo Aziz, co-founder of UAE-based corporate spend management startup Pluto, told PYMNTS in an interview.
That problem is tied to the fact that getting a credit card is extremely difficult in the United Arab Emirates and Saudi Arabia, Aziz explained, meaning that most businesses in the region only have access to a single credit card that exposes their entire bank balance with no spend controls whatsoever.
In other companies, employees were expected to pay business expenses out of pocket and were only paid at the end of the month because traditional banking rails don’t allow for instant reimbursements, so they were cash-strapped having to wait until the end of the month to get reimbursed.
It was the realization of these pain points experienced by the “massive, underserved ecosystem of SMBs” that led Aziz and his business partner to launch the expense management platform in November 2021, modeling their offering after U.S.-based industry players Brex and Ramp.
“Our first offering is not even a credit card. The first problem that we’re solving for is purely a platform that allows these companies to connect your bank accounts and to create unlimited virtual or physical spend cards that can be distributed to [multiple employees with spend control limits], along with the ability to automate collection of receipts,” Aziz explained.
And in a nod of confidence from investors, the young startup recently raised $6 million in a seed round to expand their service across the UAE and Saudi Arabia — two countries with “the highest card acceptance rates in a post COVID era at over 90% card acceptance today,” Aziz said.
Partnerships and Expansion
Given the lack of firms providing a similar service in the region, Aziz said Pluto has a first mover advantage in the market, but he acknowledged that it was not all smooth sailing.
To build a product like Pluto, he said, there is a reliance on bank partnerships which can be challenging because historically, banks have been reluctant to partner with FinTech companies in the region as companies to the U.S., for example.
But he said change is coming in the UAE, where recently three new issuer processors or Marqeta-like companies have emerged, with all of them having an underlying bank partner.
“For us, it’s a very strong signal that the infrastructure is finally [ready], and that’s also partially why we decided to double down on the opportunity right now,” he explained.
That said, quite a lot of work needs to be done on both sides to ensure that such an integration is effective because banks in the region are new to engaging in similar projects with FinTech firms, Aziz added.
And unlike the U.S., where startups can go live in a single test state and then rapidly expand to other states, there is the added challenge of expanding in a region as fragmented as MENA.
“We can do a ton of work in the UAE, only to start off from scratch in Saudi Arabia, and then start off from scratch in Pakistan, and only to start off from scratch in Egypt,” Aziz said.
To create and attract customer stickiness moving forward, Aziz said it is necessary to keep the product offering simple. “We understand that, given the audience that we’re dealing with, we can’t shock this audience with an extremely sophisticated product,” he said.
The approach Pluto has taken is to plug into the existing workflow of customers, enabling merchant clients to define the type of cash advances being given to employees or alert employees to automatically submit receipts when they are due by simply taking a photograph of the document.
The aim now is to account for what businesses are currently doing and making that process better. “Some of these businesses may be reluctant to immediately jump onto giving cards to employees but will start off with the cash advance feature and then eventually come into our ecosystem.”
Their offering is also gaining traction because it has businesses reduce fraudulent transactions engineered by senior executives who took cash out of company coffers and signed up deals with vendors, or employees who got a free revolving line of credit by taking cash from the business every other day.
“So, the excitement we’ve seen from CFOs is around the fact that ‘We can finally eliminate fraud without having to embarrass anybody, because once you’ve got cash on these cards, then you can’t really do much because we’ve got full visibility’,” he said.
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