Like Rate Surfer, which we wrote about yesterday, Expensify launched its new employee-expense management system from the TechCrunch50 DemoPit this week.

The San Francisco-based startup (note 1) combines a payment card with a web-based expense manager and uses cellphone cameras to upload pictures of receipts to match against purchases. It's a banking triple play: card, online, and mobile.

The target market is smaller businesses that want to automate expense report preparation, approval, and reimbursement to their employees.  

How it works
The heart of Expensify is a prepaid decoupled credit card. I know that doesn't makes sense, here's how it works: 

1. Sign up for an Expensify MasterCard prepaid debit card.
2. Load it with value from any credit or debit card, Visa, MasterCard, or American Express. 
3. Make purchases with the Expensify MasterCard.
4. As each purchase clears, it lowers the prepaid balance, triggering an automatic "top off" charge of an equal amount to the consumer's credit card thereby returning the prepaid balance back to the original level.

Metabank is the issuer, here's the terms and conditions.

Analysis
At first blush Expensify sounds pretty amazing. An expense management card that rides on top of your regular card, with mobile and web-based integration. Brilliant, until you start thinking about costs. There's that pesky thing called interchange. What Expensify has done is create two card transactions instead of one, doubling the amount of interchange paid.

To cover the extra interchange and create some revenue for itself, Expensify levees a 3% transaction fee on the cardholder. Although, the card is otherwise relatively fee-free, that's a significant surcharge.

Why would anyone pay 3% extra in order to use the Expensify card when they already have a credit card? The company believes that small businesses will pay the fee in order to get the expense manger features and to help employees separate business expenses from personal ones. Businesses could have multiple Expensify cards tied to different category of expenses (see screenshot below).

A business with just $1000/mo in expenditures would pay $360 per year. In addition, the business would tie up several hundred dollars in a prepaid account because cardholders can only make charges that do not exceed the prepaid balance held in the Expensify account. 

I think the expense management concept is good, especially with the mobile receipt integration. But it's just too expensive in its current format. The founders should try to move to an ACH-based "topping off" process and remove the transaction fees. 

But regardless of how this specific product performs, the integration of payments, online and mobile is a huge trend. If Expensify is nimble enough, they may be able to ride the wave.

Expensify homepage (10 Sep 2008)

Note:
1. Since I didn't see contact info on their website, here's what the founders provided at TechCrunch50: Expensify, 548 Market St. #61434, San Francisco, CA 94104, Phone: 801.745.9064