For those readers following the rise of fintechs during the past five years, Brex is a 2017 startup out of San Francisco that is a sponsored issuer of corporate credit cards, identifying itself as a specialist for other startup businesses. The company has already achieved unicorn status and has a number of high-profile investors. The idea is to start with cards and expand into other types of banking-type services. This piece appears in Business Insider and takes us briefly through a new product, which they call Brex Cash, for cash management.
‘Using Brex Cash, which integrates with Brex’s corporate credit card for startups, businesses will be able to wire money in less than a minute, according to the company…Deposits held in the Cash account will be protected by the Securities Investor Protection Corporation (SIPC), which insures up to $500,000 of its customers’ money from loss of cash and securities, per TechCrunch. Notably, the product isn’t limited to Brex Card customers: Startups that were ineligible for the corporate credit card offering can also use the service. The company has partnered with Boston-based Radius Bank to access the automated clearing house (ACH) and wire payment rails.’
So an important distinction here is that the account is not tied to an eligible corporate card qualifier. The release summary goes on to state that no fees are paid for ACH or wire payments, which are apparently being initiated by Radius Bank, an online community bank that is based in Boston. There is also a mention of rewards for these transactions. Since we do not anticipate that Radius is providing services to Brex for free, then in the absence of detailed information around the business model, one must assume that the company will use Brex Cash as a loss leader acquisition tool, in order to build a portfolio for broader business loans. The account yields 1.6% so of course we don’t know what sort of spread Brex might have in short term sweep accounts, but the real goal is the ability to earn loan interest revenues (they mention Stripe as well). The underserved small business lending space is a logical short term target, but banks have been paying more attention to cash management and so there is competition waiting.
‘But Brex Cash is a move into a more conventional business banking segment — one that’s significantly more competitive, with incumbent banks, fintechs, and large payments players like Stripe all jostling for customers. As such, although expanding its product suite can allow the company to bolster its attractiveness to both existing and potential customers, navigating the space will also likely be a tougher ask.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group