New banking strategies – the information
The technology sector was caught by surprise when Silicon Valley Bank collapsed in March. Startups faced uncertainty about what the news meant for their money, and questions about how to make payroll arose. Brex—the six-year-old fintech company specializing in credit card and spending management solutions—took swift action by maintaining credit limits on its cards and establishing an emergency credit limit for startups. Now that the dust has settled, the question remains: Where can startups feel safe putting their money? That was the topic of the day in a conversation between Jessica Lessin, CEO and founder of The Information, and Henrique Dubugras, co-founder and co-CEO of Brex.
Where are we now that the panic has subsided?
Lessin asked Dubugras how the last few weeks have been, and how the landscape looks now.
Dubugras described the immediate effects as thousands of companies rushed to open accounts with Brex. “The first few days were crazy. Everyone was trying to open accounts and trying to figure out what to do. Now we get to this point where everyone has calmed down, they have their money, and no one is losing wages anymore. There is much less panic now. But given everything that has happened, companies are wondering, what do I do now?”
An open banking relationship
Is it better for companies to keep all their funds in one bank, or to diversify with the help of specialist fintech companies like Brex? Dubugras advises startups to move away from putting all their eggs in one basket. “Let’s say you have everything in one bank – you have a checking account, you have a loan, you have taxes and you have a mortgage. If you want a banking relationship, you have to win everyone these things to be competitive. But if you’re OK with having two or three relationships, you don’t need to win all of these things. You can only win one and get really good at it.” This is where Brex fits in. “We say: ‘Let’s manage consumption. You can have all your other things from the other banks. We will only do this part of it. I believe people wishes a diversification of relationships.”
“Lending is influence”
Is it wise for startups to proactively go after lending right now? Dubugras goes back to an old saying from Warren Buffett: “If you’re smart, you’re going to make money without borrowing.” But Dubugras says: “Lending is leverage. For startups, I think it’s a unique situation that is very powerful. It is a good way to leverage the profits in your capital. But you have to be very sure of what you’re doing, because it can bring down your company.”
Big banks are still critical to Fintechs
Lessin asked how Brex viewed banks as competition. Dubugras revealed that he does not see them as competitors. Instead, he sees them as essential to Brex’s business. “You are required to work with them for almost everything. So you will always have overlap,” he said. “But because they have the most scale, we use them for a bunch of things. They provide an important infrastructure for the economy and fintech.”
How startups can win: Cut red tape
Despite an uncertain banking environment, Dubugras urged startups not to be overly cautious. “I think the right way to manage costs is not to add so much red tape that nobody can do anything. Your advantage as a startup is to be nimble and move quickly. If you kill it, you now have the same disadvantages as a large corporation without actually being a large corporation. Instead, empower people and say, ‘This is our budget. I’m sorry there isn’t more, but we have to make it work. I’ll give you the opportunity to do the best you can with it.’ Let limitations breed ingenuity. Cut costs, be more agile, do more with less. But don’t become bureaucratic and slow until you’re a big business. Otherwise, you lose your advantage.”
The future of banking is in Fintech
Even in this uncertain banking environment after the SVB fiasco, Dubugras believes that startups have options that can still bring them great success. But not just startups either – mid-market and enterprise companies are in the same boat and continue to embrace fintech in droves. By using a smart combination of banking and fintech services like Brex, companies can gain greater visibility and control over their spending. The exposure of regional banks’ weaknesses allowed fintechs to shine and really show their value. In fact, this might just be fintech’s most important moment yet.
