Transcript 0:00 I think there's a lot of players in our space that are taking, like, the modular Android approach to building essentially financial technology, where you're saying, "Look, we're gonna build just a thin software layer on top of all this, like, multitude of vendors." 0:13 We're sort of more building the Apple version of this, which is, like, vertically integrated, controlling and owning the entire stack. 0:19 And what that allows us to do is to have an edge on things where really the financial infrastructure makes a huge difference. 0:25 [ on-hold music] Welcome to Fintech Brainfood Interviews with Pedro Franceschi, co-founder of Brex. 0:45 In my opinion, Brex created a category. Life before Brex was not great for founders and growth businesses. 0:53 The least worst option was Silicon Valley Bank, which would offer a veneer of founder friendliness, but with a horrible user experience and terrible credit limits. 1:04 Brex turned this on its head with corporate cards that just worked, almost like magic. 1:11 And they removed the personal guarantee from a founder credit card and made it a business guarantee 'cause it turns out having big name VCs back you is kind of a useful thing. There's money in the bank. 1:23 It was crazy that this wasn't done before. It is truly hard to understate the revolution this created. Today, I see series A companies with a finance team of one and maybe two by series B. 1:38 Today, there are many competitors in this category, but this is a multi-billion dollar valued juggernaut with a substantial lead in both deposits and float. 1:50 So they started as a corporate card for startups, but today they're expanding. They're doing a lot more. So I wanna get into can Brex win the race? And if so, how? And a little bit about Pedro, what makes him tick? 2:04 How are they building an enduring business? Find out in this conversation. [ on-hold music] Pedro, welcome to the show. Thank you for joining me. How are you doing today? I'm great. Thanks for having me. 2:18 Excited to be here. Thank you so much. How did we get here today? Like, how does Pedro end up on a podcast with some British guy? Like, what's the backstory to you and Brex and meeting Henrique and all of that? 2:30 Yeah, sure. So, uh, I'm originally from Brazil. I started coding as a kid when I was eight or nine years old. 2:36 I got into it originally hacking iPhones, jailbreaking them to get them working down in Brazil, uh, when they were not sold down there. 2:44 And I got pretty deep into this, like, iOS jailbreaking hacking community back in two thousand and eight or nine. 2:50 I ended up finding this first exploit for jailbreaking the iPhone 3G back in two thousand and nine and got pretty into that community. And ironically, that's actually how I got into payments. 3:00 So I got into payments in two thousand and eleven. Um, I went to work for a company in Brazil doing a version of Square. They had this, uh, you know, security issues in their iOS app. 3:10 No one really knew iOS security back then. 3:12 Uh, so I went to work there to help them improve security and, and, you know, their, their mobile app, and then I ended up learning payments, uh, for, for two years inside this payments company, seeing how bad the payment ecosystem was. 3:25 I met my co-founder, Henrique, at the end of two thousand and twelve. Uh, we met through Twitter, actually, discussing Vim versus Emacs, like programming text editors. Wow. Um, we became friends. Which are you? 3:36 You team Vim? I, I was Emacs. I switched to Vim. Oh, wow. Okay. So, uh, yeah, you know, Henrique convinced me. Changing religion. Uh, it's, anybody can do it. It's, it's easy. [chuckles] Exactly. Exactly. Exactly. 3:48 So, uh, seeking the truth. Uh, so then we started our first company together. It was called Pagar.me in Brazil, and there was basically... The best way to explain it is like a Stripe of Brazil. 3:58 Uh, and we scaled that to a moderate size. You know, the company was profitable. We became the third-largest payment processing company in Brazil three and a half years later. 4:06 We sold that in twenty sixteen, uh, to come to the US. So initially we came for college, but we knew that we wanted to build something here where the great companies are built. 4:14 And then we dropped out of college six months later to do something because we like to work more than study. 4:20 And then we got into YC, uh, with a totally different idea, and then there we saw that no one could get a corporate card. 4:27 Um, there was this huge issue, um, and we decided to start building Brex in twenty seventeen, and then six or seven years later, here we are now. So you pivoted NYC. 4:38 I didn't realize that that happened when you'd gone in with a different idea and you kinda came out as almost a, a completely different company. 4:45 So talk to me about, like, what was life like in Y Combinator and what sort of from there to today? Yeah, I mean, we got in with a pretty random VR idea. 4:54 We wanted to build Apple Vision Pro, but without the twenty billion dollars Apple put into it, uh, which was a little harder. Um, but, uh, so something like that. But, uh- They call it hardware for a reason. 5:06 [chuckles] That's right. Yeah. Those are the hard- those are the harder startups. 5:10 So, uh, y- we, we, we quickly saw that we knew fintech much more than we, we knew anything else, um, and that the US wasn't really that much better than Brazil. 5:20 And, and there's an interesting thing that, like, I think the, the sort of quality of a country's financial rails are inversely correlated with how good their economy is. 5:29 Um, so, like, Brazil, for example, in the nineties had hyperinflation. Uh, so we could-- we had to move money in real time. 5:36 So we had real time payment rail since the nineties, um, because, like, if you, if it took you more than a day to move money, you lost, like, ten percent of the value. 5:44 Like, hyperinflation was like, we had months that were like, I think thirty or forty percent inflation a month. Uh, so the infrastructure really had to keep up with that. 5:52 And then you come to the US and it's, like, super stable economy for, like, I don't know, hundreds of years, right? The dollar is, like, the world's reserve currency and all that. 5:59 So and, and then ironically, like, that, that meant, you know, ACHs took three days to clear. If you didn't get a return, you know, that means success, and we were, like, sort of puzzled by that. 6:09 Um, so there was sort of more opportunity than we originally anticipated when we came in from Brazil. There's, um, that bizarre world of being the immigrant. 6:18 Uh, there's, uh, that when you experience that coming into the US, I heard a great story from, uh, a Ugandan friend of mine who's like, just couldn't believe it. 6:26 He's like, "Oh my God, this is the home of the dollar, and I cannot move a dollar." Like, what is-- [chuckles] Why, why is this so broken? It's, it's crazy. Um, so bring me up to today. What, what's Brex look like? 6:37 How many people are you? Uh, how big are you? Just give me a feel for some customers, that kind of thing. We're around a thousand people today, uh, as a company, pretty distributed across, uh, US, Canada, Brazil. 6:49 The business evolved from being a corporate card, uh, into really being, uh, a spend platform, uh, for how companies run, right? 6:57 And, and our goal is to manage, uh, and, and, and help companies make better financial decisions by bringing every dollar into our platform. Uh, and we have a variety of products to help them do that. 7:06 Uh, we have cards, we have banking, we have, uh, expense management and bill pay. Um, and, and a very powerful thing of what we're doing is doing all of this on a global level. 7:16 So what we've learned is, um, you know, sixty percent of Brex customers today have at least someone, an employee, uh, that is not in the US, uh, which we think is really powerful. 7:26 And, you know, the US is a, is a big enough problem, but when you go globally, there, there's, there's just no tools that do this well. 7:32 Um, so, so really the business became that and, and, you know, we started as this first corporate card for startups, and now we serve companies of all sizes and, you know, like, of the likes of, you know, DoorDash, Robinhood, Warby Parker, you know, Flexport, Compass. 7:48 I've heard of some of those. [chuckles] So that default global thing is, is, uh, something a good friend of mine, Angela Strange, has been playing with as a term. 7:56 Um, you know, Jeeves is, is kind of a similar company that's just, like, gone default, default global almost as the, the first proposition rather than the second one. 8:04 But, um, somebody said to me recently that, um, San Francisco is the, the world headquarters for taxis, uh, and it's the world headquarters for, like, cable video with Netflix and, and these companies go global, but they go global out of San Francisco, so you get a different kind of scale if you follow them into international markets. 8:24 It's, it's kind of a, a unique value proposition. Um, I'm interested to scratch a layer deeper. 8:30 So, um, talk me through the process of, you know, building the V1 product and, you know, how you thought about, like, build internally versus buy. Like, what, what did that look like? 8:40 'Cause there's, there's like an orthodoxy to Y Combinator, which is like write code and talk to customers. Did you follow that? 8:47 We follow that for sure, but, but to a different degree than, uh, than, than most people would anticipate. 8:52 Um, and, and I know you have a lot of fintech nerds listening, so I'll, I'll give you some of the [chuckles] inside of the hood. 8:58 So the reality is, um, when we started Brex, the challenge wasn't whether people wanted cards. Like, people thought about that before. Uh, really the cha-- really the challenge was, like, execution. 9:09 People literally couldn't issue cards. You didn't have Marqeta, you didn't have Stripe Issuing, you didn't have any of these technologies under the hood, uh, to partner with. 9:17 So we made this decision very early on to build our entire financial infrastructure from scratch. So we went straight to MasterCard, uh, and built the whole thing from the ground up directly on their rails. 9:29 Uh, and that was an immense amount of work early on. 9:32 And, and, and, and, and frankly, that's what enabled Brex to exist in the first place, because in the past, y- like, you know, we, we-- when we launched in, like, June twenty eighteen, we were instantly onboarding customers. 9:43 You would get a card in real time, the same way you would sign up for a lock. And yeah, today, like, people yawn at that, but, like, back then, like, people were, like, tweeting about it. 9:51 People were like-- people, like, couldn't believe that that was, like, really possible. 9:54 And we had to do so much innovation under the hood on the way we manage risk, the way we underwrite, uh, the way we, we issue cards, the way we manage, you know, 10:05 limits risk, um, you know, card provisioning, like card embossing, all these different things at scale. Um, and, and we literally built our own version of Stripe Issuing or Marqeta in-house. 10:16 Um, and then over time, uh, y- you know, I think our, our success in many ways, uh, our, our early success sort of b- created a case for other companies to do the same thing. 10:27 Um, and then i- in many ways, like what Stripe and Marqeta did, like lowered a barrier of entry, uh, in our market. 10:33 And, uh, and, you know, we saw a lot of competitors and everyone issuing cards and, and really I think what, what became clear to us is, like, how would, uh, uh, how-- the ways in which our, our, our sort of depth in financial infrastructure would differentiate us, like started to change. 10:47 Um, so, so the first thing we've done, uh, as a result is, like, we built a banking product. It's called Brex Business Account. Uh, it, it essentially replaces a bank account. 10:56 Um, and, uh, and really what it does is, uh, we build our entire banking core from scratch. So literally every single thing you see, every single integration with ACH, wires, like we build that whole thing. 11:06 And that enabled us to then, you know, the level of automation that we put into it, do things like what happened in SCB, where, you know, all of a sudden we have like thousands and thousands of applications and we're onboarding customers in real time, giving them access to a card and a business account, sorry. 11:22 And, uh, and really that, that was sort of, you know, an overnight success, like many years in the making, um, o- on the, on the banking side. 11:30 And then on the card side, really what was super interesting to us is seeing how much of, like, I-- we thought we had a leg up in the US, and then, you know, a lot of, a lot of vendors started doing that. 11:42 Uh, but then when we went globally, um, that was like sort of tanked. So really today, like Brex is the only corporate card that has a single system that operates in like thirty, forty, fifty markets. 11:54 And the reason is because we went to MasterCard, we built the entire thing there. We're certified in each market. We have licenses in each of these markets, but the technology behind it is the same. 12:03 Uh, so for our customers, for example, that have a lot of subsidiaries and employees all over the world, what they can do is say, "Hey I wanna issue my UK employee a card, uh, and that's like, um, you know, a pound-issued card that behaves essentially as if issued by a UK bank. 12:19 They pay it in UK in pounds, and, like, all of that is handled locally, which is really important for tax compliance, minimizing effects, cost efficiency. Uh, so it became this sort of, like, 12:32 really, really differentiated global player when you start bringing global spend into the platform because of the, the, the financial infrastructure advantage we built in the early days. 12:41 As a metaphor, I think about this bet- um, the Adyen story, right? Like, Adyen always talks about their single global platform, and, uh, that is their competitive differentiator. 12:53 There is one platform in the 40, 50 markets that they operate in, and you see them win in enterprise because that gives them a sustainable unit economics advantage in a lot of those markets. 13:05 But it also allows them to do things with risk, fraud, conversion on the back end that you wouldn't otherwise have control of if you were reliant on Stripe Radar or whatever the out-of-the-box solution was. 13:18 So that it, it, it can be a meaningful advantage. But is that not also a feature velocity problem, or are you-- is your stack still modern enough that you can get... 13:28 You're not worried about feature velocity and, and you're kind of playing in a different way? Like, how do, how do you think about that trade-off? So we actually think those are two sides of the same coin, right? 13:38 So, so I think there's a lot of players in our space that are taking, like, the modular Android approach to building essentially financial technology, where you're saying, "Look, we're gonna build just this thin software layer on top of all this, like, multitude of vendors in this space," right? 13:53 Um, so, you know, if I have to do something globally, I'm gonna add a new vendor. If I need to add a different payment method, I'm gonna add a new vendor. 14:00 And, and I think what we've learned is that oftentimes this creates this really, really fragmented customer experience, uh, where you don't control entirely what's happening. 14:10 And we've seen countless examples of this when you start having, you know, now I wanna add this new market. I have an employee in this new country. 14:17 I have to do a reimbursement, or I have to pay a bill in another currency. How do I manage that? These are all things that are, like, afterthoughts. 14:24 And really the way we think about it is, like, the, the integrated way of thinking is we're, we're sort of more building the Apple version of this, which is, like, vertically integrated, controlling and owning the entire stack. 14:34 Um, and, and, and what that allows us to do is to have an edge on things where, um, really the, the financial infrastructure makes a huge difference. And global is one, uh, I think onboarding is another. 14:46 Um, the way-- A-and then, and then, and really what that enabled us to do is to build our product and, uh, and essentially the software piece of the platform, uh, in a much more, um, thoughtful way. 14:57 And, and, and there's a bunch of examples of this, but we created this concept of, like, how do you bring ex-ex-expense management into the card in a single experience? 15:05 So before you had Concur in one hand, Amex on the other. Those were separate systems. 15:09 We said, "Well, if we build at the intersection, we can control spend before it happens and enforce your policy, your rules, the moment of the swipe," right? 15:17 And now this is like a lot of people are doing this, but when we started doing this, it was very innovative because we were in the intersection of that. Um, and, and the same is true now for global, for example. 15:27 So we say, "Hey, like, you have employees in all these markets. How do you provision them in separate entities? How do you build them in separate currencies, and how do you do all of that?" 15:36 So the way we build the actual software assumes a lot more degrees of freedom over the infrastructure to build experiences that were not possible otherwise. 15:45 Uh, so, so, so i-in some ways, it makes it easier to build great software when you have the level of control, uh, because we're not depending on anyone wanting to serve us or do things a specific way that we do, which gives us just such a, a depth in, in the way we've been thinking about it. 16:00 You can continue to innovate on features for that enterprise client and the problem space they have when they're going default global. 16:07 Uh, like, people forget that, uh, a company, once they reach a certain scale, might have an entity in ten, 12, 15, 20, 30 markets. Coca-Cola, how many legal entities does a Coca-Cola have? 16:20 And how many employees of Coca-Cola hate the word Concur? [laughs] Like, that's, that's just... When you said that word, as a former bank employee, a part of me just sort of started breaking out in hives. 16:32 So, you know, there's, there's a lot of room to run there on, on a, I think, um, the, the enterprise side. 16:37 Um, but how do you think then, like, what does your dashboard look like when it comes to, uh, delivering these features of these products? 16:45 'Cause now a thousand-person company, you know, Dunbar's number, uh, company scales, uh, every 150 people, every metric breaks. Like, what does, what does your dashboard and your day job look like? 16:56 So we actually changed, um, quite a bit the way we run the company, uh, over time. 17:01 And, and, and really, I think, like, the, the thing that we realized is, like, we w- over the last few years, uh, w-we're very, we're very oriented on financial services early on because we had to build the foundations to, to enabling all the things that we, we ended up doing. 17:14 Um, and then we realized two years ago we had this big shift towards, "Hey, let's build a software platform that sits on top of that and that we can really build things, uh, with, with all the flexibility that we've always wanted, because now we own the rails to do it." 17:26 So, uh, and that's when we built-- decided to build Empower, which is a software platform that sits on top of Rex, uh, on top of the, our own financial rails. 17:34 Uh, and that, and really, I think what we've learned there is we, we really, we really started to think from first principles on how do we think about every kind of spend that you may wanna bring into the platform, and what are the things that we can take advantage of doing this in real time? 17:49 And then I'll, I'll tell you more and, and why that matters in how we run the company. 17:52 But, and then what we realized is that if you, if you sort of zoom out and you think about, like, what finance teams are trying to do, yes, I think a lot of them are trying to control spend. 18:02 A lot of them are trying to make sure you're within policy, you're compliant. All these things are true, but those are sub-goals of a bigger goal, which is like, how do I help my company make better financial decisions? 18:13 And, and, and then when you think about the financing, a lot of what they think about is, look, we, we, we control really the lever, the cost lever, right? 18:21 We control, like, how much money are we spending on all these things. Uh, and we control the budget. We control, like, where people can go and spend. 18:28 So we decided to build the, the sort of primitives of our product in a way that aligns to that thinking. 18:33 Uh, so one of the things that we built on Brex that, that I think became sort of a cornerstone in how we, we, we sort of ran product and, and, and then a lot of things on top was this idea of, like, budgets, for example. 18:43 So you come into the product. If I go to, like, a company, and I go to, like, a CMO, for example, and I say, "Hey, Mr. CMO, uh, or Mrs. CMO, like, where are you in your budget now? 18:54 Like, how much have you spent of your budget?" And people can't tell you because the information is in ten different systems. 18:59 And one of the things that we did on Brex is like, "Look, you're gonna get this budget versus actuals in real time." 19:04 Uh, and, and, and that was very powerful in the way making the shift in how people think about managing spend because giving you real-time data allows you, for example, to say, "Actually, wait a minute. 19:15 If I, if I have this marketing campaign underperforming and this other one over-performing, I can just shift dollars in real time instead of having to wait until the end of the quarter to close and then understand what happened." 19:26 So we wanted to build the product philosophy off our software on top of the primitives that we had on a financial services. So it's sort of a very natural evolution. 19:35 And then in terms of how we sort of actually run, like, product and engineering day to day, uh, we, we-- we're pretty tops down in how we do it, and, and we have this concept called One Roadmap, and we have, like, a single roadmap for the entire company. 19:49 And what we saw in the past- Oh, it's very Apple. It's very Apple. I think a lot of that, uh, uh, uh, is not by accident. 19:56 And what we see a lot of the times is, like, we used to see in the past, like, you know, one team working towards five initiatives, and we sort of changed that to be five team working towards one initiative. 20:06 And, and I'm the sort of editor of this roadmap. I'm the sort of author of what we ship and, and, and what the cadence looks like. 20:12 Uh, and we tend to make, like, company-affecting progress, uh, and sort of customer-affecting products in each of these releases. We release four times a year. 20:21 We just had our sp- our winter release at the end of January. Uh, we made, like, massive improvements to our bill pay product. 20:27 Uh, it- it's really, really exciting to see, uh, how that enables customers to bring more and more spend into the platform and have that level of visibility. 20:34 But the way we run is very, is very aligned to a single direction, very few priorities, and then, like, things laddering up to, to our broader product vision, which I can tell you more about, but it's pretty tops down and oriented around, like, few things done really well in a very functional way, uh, across, like, basically the whole org. 20:53 There was a little detail there as well. Um, so, like, four big releases per year. Is that, is that correct? Like, four major product updates. That sort of gives me, like, banker vibes. 21:03 Like, that was my whole thing when we ran mainframes was four big releases a year. 21:07 But the problem was we didn't have the person editing the roadmap, so the fight to get on that roadmap and to get into a release was just chaos. 21:15 So you need the benevolent dictator, I think, in order for that model to work. Uh, it kind of makes way more sense. Uh, and then the other thing that stuck with me is just tracking budgets in real time. 21:25 There's a whole thing in large organizations called program management offices or PMO, and this is like an army of people running around with spreadsheets, usually from somewhere like Accenture or PwC, just trying to track budgets versus actuals the whole time on, on the big projects going on. 21:42 And software can do this, and that's, that's meaningful. That's right. The technology exists, and the thing is, like, it's not that never-- no one ever thought of that idea. 21:51 It's that no one had the infrastructure and the financial transactions in one place, and most importantly, had, uh, the control over the payment rails to enforce those things in real time. 22:01 So it's not just saying, "Hey, like, here's the budget," but it's also, how do I prevent you from going over budget, right? If you want to. 22:08 So, so really, like, I think, I think it's this sort of, uh, interesting marriage between, you know, a lot of people thought of, like, great financial software ideas, but they never could implement them because they relied on banks in the past to get these things done. 22:21 And what we said is, like, "Let's start by replacing the need for the bank. Let's build our own card. Let's build our own banking, build our own, you know, payments infrastructure." 22:28 And with that done, you can now build all this interesting software on top, uh, which is really powerful. You can't really start on the software. You have to start on the financial rails. 22:37 Otherwise, you can't, like, ladder up to, to something meaningful. So y-y- sort of like policy plus payment, everybody gets that when it's expenses. Like, this is your expense policy. 22:48 You can only make the payment on the card when it's within policy. Budget plus payment, tax plus payment, like, l- uh, legal entity plus payment. 22:57 Like, the, the financial transaction can only be, uh, instructed if it's within budget. 23:02 You know, like, there's the, the broader set of things that might constrain a payment are quite, quite wide, but you can sort of be first to all of those, and you can continually ship first if you have the infrastructure, which is just kinda powerful. 23:17 So kinda leads me to the question, which is when you think about the business today, who's your, uh, sweet spot customer? Like, who is that ideal customer? Yeah. 23:28 So, so the ideal customer is any customer that it has, like, some level of scale where they can't manage their finances alone as just, like, a founder in a room. 23:37 Like, it, you know, we're not serving the sort of single person company. Like, you know, that's less of our audience. 23:44 Uh, but one of the things that we feel really proud of is that we can serve customers from-- We, we, we talk about, like, public launch, like public company. 23:51 So this idea of, like, someone just, like, launched, it's, like, two founders in a room. Uh, we're great for them. We started on startups, right? 23:59 And the thing that was interesting about Brex is our own customers, like, scaled. So you had a customer who was like two people, and one example that I like is like Alex Wang from Scale AI. 24:08 Um, uh, we went to literally deliver physical cards to Alex, and now he's like, you know, a billion-dollar company. He has like, I think, almost a thousand employees. 24:15 He's like at the forefront of AI now, uh, and with, you know, LLMs training and things like that. He became an enterprise customer himself, so he has like a CFO, he has like global employees, he has global needs. 24:26 So our own customers pulled us up market in many ways. 24:29 Uh, and, and, and really what that meant is we, we naturally progressed through these, all these life cycles of a company, and we sort of were building on top of that complexity to support these larger, more sophisticated use cases. 24:40 So but I would say the majority of customers that find the most value out of Brex are, I would probably say like any company between zero and, you know, ten thousand employees, we can serve them pretty well today. 24:53 Uh, and you know, we have segmentation. We serve like a lot of them in different ways. But, um, but we started with startups and then really went up market. 24:59 And obviously, the majority of the customers is like probably in the, you know, five hundred to a thousand employee range, I would say. That's your current sweet spot, but you've grown up with them. 25:08 And, and, and I wonder, um, on the risk side, do you see it as a risk that like you age out with that generation? 25:14 I mean, that's a pretty great class, to be fair, to be aging with, like the, the probably one of the all-time great, um, VC classes, um, in terms of market cap and valuation. 25:25 But do you, do you see the need to always be chasing the bottom of the market, or do you see like different directions for you? 25:31 I think the reality is, at the smaller customer size, I think like if a company is not planning to scale, I typically don't find a lot of value in Brex because a lot of the things that we build, like they, they inherently make more sense when you have complexity, right? 25:44 When you have more employees, more spend, more different things going through the platform. Uh, and we do a lot of work trying to simplify it as much as we can. 25:51 Um, but, but the reality is like startups are a very interesting-- and, and that's like our sweet spot in the sort of smaller customer, smaller employee count, because they grow, right? 26:00 And they need a solution that scales with them, and they have more complexity from early days. They have like employees all over the world sometimes, right? They have-- They're distributed. 26:10 They're not just like, you know, two people inside a single location, like a restaurant or something like that. And they might have five million dollars to manage instead of cash flow. Exactly. 26:19 They have treasuries, right? They have like-- It's just a different reality than a traditional small business, so our, our sweet spot is customers that scale. Yeah, okay. That's a, a different take on it. 26:29 It's not like how big the company is, it's how big the company can be and intends to be that, that kind of defines it. 26:36 So, um, last point in this section really is like what's the non-obvious insight that you've learned as you've built this infrastructure? 26:43 Like, if you were to talk to Pedro in two thousand and seventeen, what would you tell that guy that's gonna be like, "Holy crap, that's the thing"? I guess it was just a lot of work, and a lot of work that no one saw. 26:55 And the reality is a lot of people asked us later on, they were like, "Well, but like now there's all these different infrastructures that you can use. Why don't you just switch to them?" 27:02 And, and, and the reality is we-- to be at the forefront, we always had to be pushing the envelope on what was possible in the rails, right? Always. So like for example, global, I think now is an example. 27:12 Like FX management is another example. Uh, banking was another example, right? 27:16 So we always had to have that really strong financial services orientation, uh, to build great software, um, because that's what enabled us to, to really be at the edge of what, what a software could do, is we had to have more control over that. 27:28 You know, stay true to your convictions in many ways. Um, you know, I think like a lot of times people try to like dissuade us from, from building the rails the way we did. 27:37 Uh, and then I think later on as we scaled, I think probably the most interesting thing is like how, um, how much we sort of changed the paradigm of what credit cards can do. 27:48 Um, and, uh, and I think we, we latched onto that for, for a long time, and, and it's been great. And, and I think, you know, uh, for better or for worse, people still associate Brex with corporate cards. 27:58 Uh, but we do like so much more than cards today, and that gets lost in translation sometimes. But, you know, obviously, it's what we're known for, and w- we're, and we're thrilled. It's our biggest product, of course. 28:07 It's the one that grows the fastest. But it's, uh, it's, uh, it's an interesting place to be where you do so much more. 28:13 You've done so much change in the concept of what had in your heads about the first one that it, it-- all the rest almost like, you know, is, is, is less relevant in some way. I completely get it. 28:23 Like your revenues might come from somewhere else entirely. Uh, the unit economics might be really advantaged somewhere else, but you'll always be that, that company that did that thing. 28:32 You know, uh, to a lot of people, Miley Cyrus will always be Hannah Montana. It's just like there are some things that just label a category. I, I, I completely, completely get that. 28:42 Um, when you mentioned foreign exchange, that's a really interesting one as well. 28:46 Like, uh, I remember going to a conference with, uh, corporate treasurers, uh, of like, you know, the great and the good, the Pepsicos and, you know, these global, global companies. 28:55 And somebody described the job of treasury management at that scale as being, um, managing cash flow and managing risk. So how can I be more cash efficient, and how can I manage risks? One of those is FX risk. 29:08 One of those is supply chain risk. 29:09 One of-- Like there's a whole bunch of things that you worry about at scale that meaningfully alter this quarter's results in a way that you do not worry about as a very young company, and you need those products and those features. 29:21 And I always looked at Brex as sort of backing into being a global transaction bank. So I came from cash management and global transaction banking, and it feels very familiar to that world almost at, at, at some point. 29:34 But speaking of, um, just winding the clock back slightly and a bit of a segue here, um, I wanna talk about life in Q1 of last year, twenty twenty-three, Silicon Valley Bank. Uh, that's all hitting the headlines. 29:47 Take me inside the Brex office. Take me inside your world when the news hits that, uh, SVB's down, that there's a run on the bank, that all of this is going on. What, what was that like? 29:59 Yeah, I mean, definitely one of the most, uh, memorable moments of my, my career, and, and, and probably most people that were at Brex, uh, would probably say the same thing. 30:10 First, we, we, we didn't know it would happen, right? I mean, we had-- we monitor all of our, all of our banking partners', uh, uh, like balance sheets and financial health, and we, 30:22 you know, like, th-there were some evidence that things were interesting from a liquidity perspective and, and, and just solvency perspective at, at SVB earlier on, uh, like maybe, maybe like six months behind when interest rates, like, started to, to rise. 30:37 Um, but you know, th-th-they've been so big that I think no one really anticipated that. And, you know, inside Brex, we, we had two things happening that were really interesting. 30:46 And one of the insights that to me became clear in hindsight is, like, history is always told from, like, the standpoint of, like, winning and playing offense. 30:57 But really, inside a company, we're very divided in offense, offense and defense. 31:02 Uh, so yes, in some ways, it was really, really a unique moment to, to, you know, acquire a lot of customers and, uh, and, and, you know, grow the, the business materially and, and, and, you know, serve these customers better than the, the previous solution. 31:15 But, but i-in a different, in a different vein, it was also a, a very risky and fragile moment in the financial services industry. 31:23 And, and, and, and what you have to remember is these banks and these financial services are all interconnected. So, you know, we didn't know, like, was this the first of many banks to fail? 31:34 And then, you know, you had First Republic after. Uh, we didn't, uh, you know, all of our capital markets partners were calling us and saying, "Hey, what's going on?" 31:42 And we had, you know, like hundreds of millions of dollars of exposure to SCB through receivables. We didn't have cash from Brex itself there. 31:49 Uh, we were, we were very conservative in that side and, and, and kept a lot of it away. But the reality is, like, we had a fair amount of exposure. 31:56 And then the question is, all these SCB customers that can't access their bank accounts, they have, like, Brex cards with, like, limits, and that's the only money they can spend. 32:04 So how you manage that risk also wasn't clear. 32:07 And we did a lot of things like give customers as much leeway as we could while making sure regulators and banking partners, uh, and ourselves were comfortable with the level of the risk that we're taking because we needed to, to be financially healthy as that happened. 32:23 And, um, and, and, and it was an interesting moment because, um, we did so much great work, uh, playing defense as well internally and managing risk. Um, and that wasn't, uh, obviously no one noticed it. 32:34 What people heard is like, you know, two billion in deposits, like thousands of customers in thirty-six hours. Like, obviously that was great, don't get me wrong. 32:41 But the reality is, at the end, we saw how powerful it was, um, to do both at the same time. Do you know what's crazy? Risk management never gets the applause. 32:51 I always describe that job as being a bit like a secret agent. Like, if they do their job super well, nobody notices, and they're just anonymous. 32:59 And that's a shout-out to everybody that works in those functions because you don't know who's solvent, you don't know what receivables are gonna come through, and yet at the same time, you're torn about wanting to support your customer. 33:12 So I, I'm curious how you reflect now more broadly on the, like, partner bank ecosystem, because in the US in particular, uh, you, you are reliant on underlying banks for these deposits to exist. 33:26 I think it's now become normal for, uh, companies like yourselves to partner with sweep networks and to make sure that that, that's adequately risk managed. But how do you think about that partner bank ecosystem? 33:38 There's a lot of regulatory pressure on partner banking ecosystem. Like, what are your reflections on that? Yeah, a hundred percent. 33:46 And, and one of the things that we take great pride at Brex is on risk management and, and compliance. 33:50 And, and you know, I think, you know, especially a lot of new players in our space, I think they lose sight that at the end of the day, yes, they're software, yes, all that's cool, but you're still doing financial services. 34:02 You're still doing lending, you're still doing KYC, you're still doing underwriting, you're still doing onboarding. 34:06 And, and, and those things are very serious and very complicated and, and there's a lot of things that can go wrong. 34:11 One of the things that we, we spend a lot of time is on, like, credit quality and credit performance, right? 34:16 We had, you know, three to four X better performance dynamics historically, which is like, you know, thanks to the technology and the way we build the credit systems and the way we have real-time data to underwrite. 34:26 Um, so, so that's something that I think we, we, we, we felt pretty proud of. And the way we always manage our banking relationships and partners is, like, very, very, very tied to the hip, very close to them. 34:39 And, and the reality is they are, uh, as big of a part of the customer experience as Brex itself because, like, they, they essentially are the ones that give us the, the, the, the sort of power to play. 34:50 Um, and, and we, we tend to take a lot of the overhead ourselves, um, because, like, we probably have an easier time in building technology. 34:57 So we say, "How can we comply to whatever you have to comply and go the extra mile to give you the systems to monitor us?" 35:06 Um, so we tend to be very proactive in, in the way we handle them, uh, just so we're sort of building, assuming the requirements that they have from their regulators is something that we're thinking about as well. 35:18 Uh, so it's very collaborative. 35:19 Uh, we, we were very fortunate to have great banking partners, Amagram Bank, uh, Column Bank, and, and many others that have partnered with us over the course of, uh, the company's history. 35:30 So, you know, that, that for sure has been, has been a big plus and something that I think we did right, like choosing the right partners. But I think there's no secret. 35:36 It's just, like, really aligning the incentives, thinking about the world and the challenges through their eyes, uh, and them thinking about, like, the customer experience and the things they wanna build through our eyes. 35:46 And together, those two things, like, help us help you be more aligned and, and do things, uh, in a better way for customers. 35:52 I like that default approach of, um, imagine if I had all of the obligations the bank did and all of the risk they did, so I'm putting myself in exactly their position, but I have my ability to build tech, not theirs. 36:05 So what would this look like if we were one company? 36:08 And that's the, the nature of partnership, which has frankly not always been the case when there's been sort of a partner bank and then an intermediary and then a fintech company, and things got a little bit checkbox processy there for a little while, and we can see that kind of coming back the other way. 36:23 Um, but speaking of risk, like, what would you say are the risks you worry about? What are the material risks? Could you lose your edge? Could you get a bit long in the tooth? Age comes to all of us. 36:33 I know I'm about to turn forty. So what do you think your risks are? I think the question always is, you know, of course, there's all the sort of financial services risks, right? 36:43 Which I think we've done a fairly good job managing. Uh, but really, I think the biggest risk is, like, a lot of it is, like, we wanna push the envelope for how companies manage money, right? 36:52 We wanna be at the bleeding edge, uh, and, and help them with the tools and systems. 36:57 And we call the product Empowered not by accident because we want them to empower everyone in the company to make better financial decisions. 37:03 And I think the biggest risk is just, like, how can we, how can we execute on that vision that is, like, incredibly bold? Uh, it's, uh, you know, it's bigger than cards, it's bigger than financial services. 37:14 It's really about almost culturally how a company thinks about money. 37:18 Um, and, and what we see is as they start getting into the Brex mindset of operating the business and thinking about money, uh, a lot of things start changing in the way people feel empowered to make financial decisions, uh, in the way, like, cost savings become, like, really apparent because you have data that just shows what's waste and what's not. 37:37 Uh, you start to see, you know, global employees playing field as employees in the US. So I, I think you see a lot of that, uh, happening. 37:45 So but, so I think the biggest edge is-- the biggest, you know, risk is just, like, execution. Like, can we, can we sort of live, uh, to the size of our ambitions in many ways? 37:54 And, uh, there's a lot of complexity because the reality is no one has really done this before. 37:59 No one has really had this idea of saying, "We wanna replace all the payments and bank" and, you know, essentially the, the role the banks traditionally played on the payment side, and we wanna replace the software as well at the same time, uh, and do this on global scale. 38:12 So, so the reality is when you put these three things together, the sheer size of it is daunting. And the other thing I'll say is I think generational companies like what we're trying to do, they take decades to build. 38:24 So a lot of it is, like, not, like, how we win in the next six months or the next year. It's how we win in fullness of time. 38:31 So we made a lot of decisions in a very deliberate way that are not optimizing for, like, twenty twenty-four. They're optimizing for, like, us five years from now because I wanna be here running the company, you know? 38:41 We wanna be here doing the same things and, you know, I think a lot of the focus that we had on, like, long-term profitability, our cost structure, and just, like, configuring the entire business model to become the unquestionable winner in this, like, spend management and card space and, and, and, and go-pay space in a more global level, uh, they're not gonna pay off this year. 39:02 You're gonna see some things next year, but really, I think we're thinking about it in a much longer time horizon than I think other players. 39:08 Um, and, and I think when you put together the realities of, like, how do you win in a w- in a time span of decades, I think it just, a lot of decisions become different, um, and, and that's what we're focused on. 39:19 Well, that's sort of like the founder mantra really is you're trying to build something sustainable. You're not necessarily thinking next quarter, which is always a, an advantage you can have. 39:28 Um, and it, it is a different approach. It's the more Apple-like approach, which is when they launch a V one of everything that people go, "Wow, that's expensive and it doesn't even do the dishes." 39:37 And then ten years later, it's the dominant product. So it is, it is a mindset that, that has been proven to work. 39:44 Speaking of like approaches to work and, and talent more broadly, um, you know, a lot of my audience is, uh, an operator in financial services. Uh, Fintech's had a hard time. 39:55 You know, there's been a lot of layoffs, frankly. I think there's been, uh, a lot of things where, uh, VC firms, you know, haven't been as popular. Um, you know, the Fintech team hasn't been the most popular team. 40:05 The AI team was. Should somebody still come to work in a Fintech company and, and why should they stick around? Like, what motivates you? What motivates the team? Like, why do you get excited? 40:16 I think the thing with Fintech is there were a lot of tourists [chuckles] in the past, like few years, especially in the, in the zero interest rate period. 40:23 And I think the reality is if you think about Brex, like we're still less than one percent of the US market. 40:30 And yes, you know, the company has grown a lot since we, we launched, uh, thankfully to a lot of customers, you know, putting their trust on us to, to run their business on Brex. 40:39 But the reality is we're still so small and really like the competition is the big banks, it's Amex, it's Concur. Like these are the players that really are still in the space. 40:49 And, and, and I think the thing about Fintech that to me is, is really intriguing is when you get into the way people make financial decisions, um, it, it, it's almost like the ethos of like being a great operator is at the end of the day you're trying to make great capital decisions. 41:05 You're trying to make great, great investment decisions. You're trying to make sure you're putting resources in the right places. 41:11 And um, and, and I think one of the things that I really believe in at Brex is like how do you help companies break trade-offs? Like how do you help them like do more of less, right? It's not just less. 41:20 We wanna help you do more, right? And that idea I think is really powerful and, and I think the closer you are to how money moves and how people make decisions, I think the ability of influencing outcomes is like big. 41:33 And I think especially when you align with financing like ultimate goals, I want people to make better financial decisions as a business. Um, I, I think that has a more profound meaning. 41:41 Uh, I think it's not just about like spend management can be cost savings, right? It can be a tool that helps you go, go, you know, save, save a few dollars in SaaS or a few dollars in T&E like that. 41:52 Sure, you can use the product for that, and we do that really well. 41:54 But, but I think the more fundamental truth is like being a well-run company requires you systems to make great decisions and that those are the things that we wanna build. 42:04 So I think Fintech just allows you to have a really great platform to change how co- how money, how money moves and how money is spent in a company. 42:12 And I think that that can really influence outcomes in a more material way than you would in, you know, like a traditional SaaS or, or something like that, that maybe you're just operating in a very limited scope of what dictates the success of a company. 42:24 You've mentioned first principles, you've mentioned primitives, and now you've sort of hinted at systems thinking, which is looking for points of leverage in a system. 42:33 And one of the biggest leverage points is changing how f- the financial system works, because once you've changed how money moves, you can change just about anything because you need money and capital to do just about anything. 42:46 You wanna build a school, you wanna prevent human trafficking. 42:49 Generally, whatever it is a person cares about, I can link money back to it, and if I can link money back to it, I can link how changing the financial system and getting closer to the metal would make a meaningful impact for it. 43:01 So I-- it's an insight I absolutely agree with. And so I wanna l- then look forward. 43:06 I mean, you sort of br- alluded to this ever so slightly in terms of your thinking in decades, but what are your, uh, priorities over the next sort of twelve months, um, three years, five years? 43:17 Like, if I was to say, "Here are the things that you're jumping up and down about and, like, really focusing on for the next four courses of, of your releases," what would that kinda look like? 43:27 I think there's a few themes that are very top of mind for us. One is, like, how do we think about, like, bringing more and more spend into the Brex platform? 43:36 And, and, and one thing that's powerful is s- yes, of course, when you bring it all together, um, it's, like, unquestionably, you know, unbeatable compared to having point solutions. 43:46 But we also wanna make e- each individual solution extremely competitive on their own. So we wanna make our card product individually competitive. 43:52 We wanna make our banking product, our, our bill pay product, our travel product, right? Uh, which we, we, we built a lot of depth in travel over the past, uh, over the past, uh, 18 months. 44:02 Um, so I think that's, like, a theme. Like, how do we build, like, a lot of depth into, into each one of our offerings? 44:08 Second theme I think is, like, what starts to be, to matter when you bring all the spend into one place? Uh, so, so things like the things under the hood the finance teams only care about. Like, how do you budget? 44:20 Uh, how do you close your books? Uh, how do you, you know, mi- move money globally, right? This, these things, like, a little bit a layer below, uh, the spend decision and more into the life cycle of expenses, right? 44:32 You think about, like, budgeting, accounting. 44:34 Like, all these things are not things, like, people are worried about or thinking, but those are main reasons why a lot of customers choose Brex, because we do it really well and wanna continue, like, staying ahead of that. 44:44 Um, and, and probably the third theme, which is a little bit more thematic, is, um, a-a-a little bit more broad, uh, but still very important to us, is, like, how do we, we do this in a sustainable way that, like, we can endure for, like, a long time in this market? 45:02 And you know, markets are not, like, the easiest right now like they've been in 2021. 45:06 And we made a lot of, like, really deliberate decisions to, you know, keep our fortress balance sheet in a really solid place, uh, make sure our cost structure and path to profitability are really clear. 45:17 Uh, we, we don't need to raise any more money. We build a path to cash flow positive with the money we have raised, uh, which we're very proud of. 45:23 So, so, so really I think it's like, how do you endure, um, so that in fullness of time y-you become the default solution? 45:30 Because one of the things that I really believe in is, like, at the end of the day, like, compounding is the strongest force in the universe, so we need to do things that compound, and I think we are doing that on the product side and the way we grow and the way we're putting this message out there in the market. 45:46 Um, but, but ultimately, it only matters if you can continue to compound. So what are the things that we, we need to do internally in how we orient ourselves and the level of rigor that we bring in every day? 45:57 We have this sort of, this new operating model about roadmaps and all the things that I talked about. 46:00 We call it Brex 3.0 internally, and how do we bring that level of rigor, discipline, uh, great financial ma- decision internally into-- And almost like you sort of, uh, eat your own dog food. 46:11 You know, the, the very thing we're selling to customers, we have to become. 46:14 Uh, so, like, if we're saying, "Hey, you can do more with less, you can break trade-offs, uh, you need to make better financial decisions," we need to be the, the sort of, uh, poster child of that internally. 46:23 So it's something that we, we have a lot of proud of in, in, you know, being the kind of company that we wanted to support. Uh, and you know, we are our own customer in many ways. 46:33 You have to experience the pain of your client to really empathize with it, and you have to be forced into those trade-offs. 46:39 Um, at, at Sade, my CEO, Sups, always talks about, like, he'd, uh, rather avoid hiring for as long as possible because I want you to feel pain before and try and solve that problem another way before you hire. 46:51 Um, because it cr- it, it is that classic Silicon Valley ethos, um, and it creates the-- I think he uses the term a lot, uh, "Necessity is the mother of invention for a reason," and, uh, I'm, I'm totally with that. 47:03 Final question, uh, just to kind of round us out. Is there anything I didn't ask that you kind of wish I had that you think's important that people should know and, uh, anything else you wanna close on? 47:12 I think the main thing is, um, we're still so early in this market. Like, I, I can't stress this enough. 47:18 I tell this to my team, but Brex and all the new entrants in the space of, you know, B2B, fintech, you know, spend management, we're still 1% of the way and the battle is not gonna be decided in the next, like, two years. 47:31 It's gonna be decided in the next ten. So a lot of the decisions that we make are about how do you endure in fullness of time. 47:39 And, you know, you look at, like, amazing companies out there, you look at Apple, you look at Meta, you look at Amazon, it's a 20-year journey, right? And, and that's what we wanna set ourselves up for. 47:50 We spend a lot of time thinking about that. Like, how do you, how do you endure and how do you thrive and become the sort of unquestionable winner in the space, but not next year, uh, in a longer timeframe. 48:00 And, uh, long-term thinking is, is, uh, something that we've learned, I think, uh, over the past few years, especially as we went through zero interest rate periods and you start to think about, okay, what does this company ultimately become? 48:13 And I think that just the potential of what we're doing is bigger than financial services. 48:17 As I said, like changing company culture, like how we make spend, spend decisions across the board in any resource allocation decision. 48:24 And I think that's a very profound goal that ultimately means companies better run and, you know, more, more value delivered to society, you know, more impact. Companies that just literally do more, right? 48:36 And, and, and get closer to achieving their own missions. You've found a tipping point in the system and you're gonna push hard to, to kind of make that leverage work. I respect that, Pedro. 48:45 Pedro, thank you so much for joining me. If people are curious about you or Brex, where do they go to find out more? Brex.com. We have everything there. All righty. Um, and thank you for listening, Fintech Nerd. 48:56 If you like this episode, please remember to tell your friends and leave a review on Apple Podcasts or wherever you get your podcasts. It helps others find the show. 49:05 You can find me on my blog at fintechbrainfood.com, or you can find me @sytaylor on just about every platform because there's so many of them these days. I'm even on Farcaster. I'm on Blue Sky. 49:17 Wherever you wanna be, you'll find me. Thank you so much and bye for now. 49:21 [outro music]
