The Scene
When the two most important banks serving technology startups, Silicon Valley Bank and First Republic, collapsed, it offered an opportunity for fintech firm Brex. The company sprung into action to pick up where the big banks left off, and it’s become a popular place for earlier-stage startups to park their cash.
Now, more West Coast banks are in trouble this week. We spoke with Brex co-founder and co-CEO Henrique Dubugras about how the banking crisis has shaken up the fintech landscape and how AI will change the industry.
The View From Henrique Dubugras
Q: Has the turmoil in the traditional banking industry been good for Brex?
A: It’s unclear if this is net positive or net negative. We’re super sad about the situation. First Republic was our first partner back in 2018.
Q: AngelList has data showing there’s been a big influx of money going out of the traditional banks into Brex. Is that right?
A: That data is biased towards early-stage companies. We did get a good amount of flow share from the early-stage side, but the majority of the money went to the big banks.
The way this positively impacted us is that before all this happened, customers wanted to maintain one banking relationship. Now, I think a lot of customers are like, look, I want to use what’s best from each bank.
So for Brex, they love that they can send wires and [electronic fund transfers] super easy, the bill payment aspect, the fact that we have $6 million in FDIC insurance [more on how that works below], and we can easily invest in money market funds for them. But we’re not seeing customers say, ‘I have $500 million, let me put it all in Brex.’
Q: Will the struggles in the banking industry lead to more innovation in financial tech? Will the landscape get more competitive?
A: Overall it’s net negative for the industry. If customers trust only big banks and regulators don’t trust regional banks, who are a lot of the fintech sponsors, that makes it really hard for fintechs to operate.
That would be really bad for consumers and the economy if everyone needed to bank with a Big Four bank. I’m really glad that regulators are stepping in and making depositors whole. I come from Brazil, where we only have like six or seven major banks. One of the biggest advantages that the U.S. has is its strong regional banking system.
Q: You offer $6 million in FDIC insurance with sweep accounts [where a broker dealer moves money into multiple government-backed accounts across banks]. Why stop at $6 million? Is there a limitation to that system?
A: No, we would just need to build integrations with more banks. But I would say for the majority of our customers, they leave in their checking accounts only whatever their operating balance is. Our average customer has one month of burn, which goes up to $6 million. We, in theory, could have over $100 million, but we’re focusing on other kinds of priorities for now.
Q: Should the FDIC just make the official limit higher, rather than make customers go through the hoops of sweep accounts?
A: It’s a complicated question. Banks would make different, more risky decisions if everything was insured.
Q: Are there any policies that you think would make sense to encourage more innovation, more companies like Brex, to start up and get customers?
A: I’m not a policy expert, but I would say, ‘don’t prevent it from happening’ is already a great start. There are things that could be better, but the status quo is working. Just don’t mess it up and I think more companies will survive.
Q: What is Brex’s AI strategy and what is AI’s role in fintech?
A: A lot of finance is searching and figuring out what are the numbers. I think it’s going to be really easy for people to do that in the world of AI, where I can just ask anything, like how much did I spend last month? How much did this team in this location and this period spend on these vendors? Can you find the most non-compliant people? There’s a lot of applications in terms of interacting with finance, which is a pretty complicated thing to use, that I think are super cool.
For the end user, there’s a lot AI could do to automate the financial flows that all of us have to do to spend on cars, do expenses, etc.
Another thing that I think is super interesting is the globalization of fintech. If you look at the most valuable fintechs in the world — PayPal, Stripe, Visa, Mastercard — they’re all global in nature. [Brex announced a new global credit card service on Thursday, making it easier for companies to offer employees corporate credit cards in local currencies around the world.]
Q: What about decentralized finance? There’s just bad news after bad news. Is there a role for blockchain and those concepts?
A: I think so. It’s probably not as broad an application as everyone was expecting in 2021.
But bitcoin hit $30,000 [roughly two weeks ago]. It’s hard for us to understand from a U.S. perspective. But coming from Brazil, where inflation and volatility happens so much, bitcoin makes a lot of sense to me. You could have a global currency that is less volatile than a lot of these smaller currencies. I don’t think that if you own U.S. dollars, it necessarily will be less volatile. But if you own Argentinian pesos, I think Argentines are pretty happy to own bitcoin.
