The fresh funding values Divvy at $1.6 billion, marking its entrance to the unicorn club. Divvy operates a corporate spend management platform, including a corporate credit card and software that helps firms manage and limit their expenses. The startup will focus this funding on product development and engineering.
Divvy stands out by offering its services to businesses for free, which has likely contributed to its strong growth this year. Divvy's technology aims to cut down on managers' time spent processing expense reports. It is also expanding its offering by enabling businesses to pay their bills through the platform. Divvy offers its software for free, instead making money by taking a small portion of the fee merchants pay banks each time a customer uses one of its cards.
This gives Divvy a competitive advantage, as some competitors charge users for their services: In addition to interchange fees, Teampay and Airbase, for example, also generate revenues by charging customers for using their software. Divvy's pricing model likely helped spur demand for its products, and monthly sign-ups were up 500% since March, per Bloomberg. Additionally, its platform spend more than doubled in 2020, versus 2019.
Pandemic-related pressures are highlighting businesses' need for affordable expense management tools—yet Divvy may have to reconsider its fee structure in the long term. Nearly 100,000 US businesses have closed permanently due to the coronavirus pandemic, as of the end of August, per Yelp data cited by CNBC.
While spend management solutions won't be a magic bullet for businesses facing closures, they can play a key role in easing cash flow management for those that need to operate on tighter budgets amid the crisis. And Divvy's fee-free structure will make it even more appealing to cash-strapped businesses. But that model may not be sustainable in the long term: The platform's fresh funding will likely help it continue operating without fees for the time being, but in the future, it may need to consider additional fees for customers to move toward profitability.
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