This Fintech Lender Has Big Plans to Be More Than ‘Just a Bank’

Brex grew rapidly as a lender to startups, initially by offering charge cards to businesses. The firm applied for an industrial bank charter, with the aim of providing a wider array of banking services. Though it recently withdrew the application, it plans to resubmit it. That delay gives banks and credit unions a little more time to take the measure of this SMB competitor.

Fintech Brex has made a significant name for itself in a small amount of time. The company was started in 2017 by Brazilian duo Henrique Dubugras and Pedro Franceschi, who had previously founded and sold a digital payments company.

In the subsequent four years, Brex flourished as a lender specifically to startups. It started by offering charge cards to businesses and has expanded to offer more services in recent years. Earlier this year, the firm formally applied for a bank charter, with the aim of providing a wider array of financial services to small-to-medium sized businesses, though it recently withdrew the application and plans to resubmit. Brex has a current valuation of $7.4 billion.

From VR Startup to Fintech Lender to Startups

Interestingly enough, Brex did not start life as a fintech, but as a virtual reality company instead. Dubugras and Franceschi came to Silicon Valley with the idea of starting a VR company called Beyond, according to TechCrunch.

The pair soon encountered the common problem entrepreneurs face: access to credit. As TechCrunch notes, “Big banks see small businesses as a risk they aren’t willing to take, so founders are often left at a dead-end.” In this case, however, “Dubugras and Franceschi not only had a big network of startup entrepreneurs in their Rolodex, but they had the fintech acumen necessary to build a credit card business designed specifically for founders.”

Simple Premise:

Like many fintechs, Brex was born from a combination of the founders’ financial frustrations and a technology solution to them.

Brex initially was a lender primarily focusing on promising startups that may not necessarily have the financials in place to get a loan from a traditional bank. As noted by Productmint, Brex credit limits are issued based on a company’s cash flows and not (as typical with many other credit cards) on an individual’s credit history and score; thus Brex looks at a firm’s financial backing, sales volume and spending patterns. As a charge card, the balance must be paid in full every month.

Since Brex serves a segment of businesses that routinely fail, one would think there is a high degree of volatility in their business. That’s why the company uses robust data modeling and analytics to make lending decisions.

“It does not require a Social Security number, a personal guarantee, or access to the founder’s credit score,” states a Harvard Business School review of the Brex platform. “It does, however, require card holders to link their bank account, and Brex utilizes information about the bank account balance as a primary underwriting input.”

Brex relies on a partnership with Finicity to integrate with thousands of U.S. banks and also to ensure that consumer information is encrypted.

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False Start on the Road to Brex Bank

In February 2021, Brex made the next step on its journey, when it applied for an industrial bank charter to become an FDIC-insured bank based in Draper, Utah. According to a press release announcing the move, Brex Bank will expand upon Brex’s existing suite of financial products and business software, offering credit solutions and FDIC insured deposit products to small and medium-sized businesses (SMBs).

Six months later, on Aug. 9, the company announced it would withdraw its ILC application in order to “modify and strengthen” it and resubmit it.

The Takeaway:

Brex paused its ILC charter application, but not its designs on becoming a licensed provider of banking products.

Brex hired Bruce Wallace as the proposed CEO of Brex Bank. Wallace previously served as Chief Operations Officer, Chief Digital Officer and Head of Global Services of Silicon Valley Bank.

“Most small, medium-sized businesses, they have to go to multiple places to basically run their finance operations, and they can use anywhere from 10 to 15 different software tools to do that,” Wallace told American Banker.

Brex Bank thus aims to serve as an all-in-one platform for its business customers; or as the company put it in the press release acting as “the operating system for thousands of businesses while saving them time and money.”
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A High-Growth Trajectory

Brex has grown its operations rapidly in four years, from basically a team of two to a global operation with 600 employees. It has raised approximately $1.2 billion in funding, per Crunchbase, with investors including Tiger Global Management, DST Global and Kleiner Perkins.

Brex’s main competitors include other tech companies focused on the business banking and expense management space, among them Expensify, Ramp and Pleo, as well as larger established players such as SAP Concur.

The company did hit a bumpy road during the Covid-19 pandemic of 2020, as many of its customers were also hurting due to widespread lockdowns. In July 2020 Brex laid off 62 employees, as well as cutting credit limits for some of its client base.

Brex declined to respond to questions by the deadline of this article’s publication.

In May, the company announced that customers can now redeem their Brex reward points for cryptocurrency. Customers can use rewards points for Bitcoin (BTC) and Ethereum (ETH) the same way they redeem Brex points for miles, gift cards, cash, or travel.

Going After Banks’ Core SMB Market

Brex’ marketing and advertising messaging demonstrates how the company is positioning itself going forward. In the spring, it launched a campaign in several major U.S. cities targeting small-to-medium sized businesses. The theme of the campaign was testimonials from existing customers about how much time Brex saved them by being an “all-in-one” solution, as opposed to using multiple tech solutions to manage their finances.

The Pitch:

Brex believes that SMBs are underserved by traditional banks, since banks typically do not make much money off of them.

“The campaign was built on this ‘less is more’ insight — that Brex can uncomplicate finances for small businesses so owners can get back to what really matters to them,” Tearsheet notes. Brex Chief Marketing Officer June Sauvaget says that “traditionally, the products offered — credit cards, business cash accounts, new spend management, and bill pay software — are provided by separate institutions, creating fragmented financial systems that sour the customer experience.”

Sauvaget also noted that SMB clients typically are not very profitable for traditional banks, and thus are an underserved market.

With a growing client base, an application to become an industrial bank, and flush with cash, Brex is likely to become an even bigger player in the business banking space in years to come.

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