How Brex Is Preparing for the Next Phase of Fintech

Key Takeaways

Earlier this month, the CEO of Brex sent an email out to his employees boldly declaring that the turnaround is over and the company will now return to unconstrained ambition. I want to bring on Pedro Franchesci, the CEO who wrote that memo to tell us about how he's shifting his thinking to this new phase of growth for Brex. Pedro, welcome to the show. It's great to have you. >> Thanks for having me. Excited to be here. So let's talk about the turnaround being over in this period of unconstrained ambition. I kind of want to segment the discussion to two halves. One is the turnaround, one is the unconstrained ambition. Tell us about what exactly the turnaround is that you're referring to. >> Yeah. So so maybe let me just start with where we are today. So if you just look at the business uh over the past, you know, 20 months, we rebuild entirely how we operate as a company. So when you think about you know the way we build products uh the way we build our go to market the way we operate the leadership team uh and just the the sort of talent density on leadership levels in the company they are very different from where they were 20 months ago. uh and I I wrote uh a few a few memos about this on you know having leaders that operate at all levels changing the way we build a product and you know me as a founder and co being much more involved in the product roadmap and the quality of what we ship um and and as a result you know in August uh Brex grew you know just shy of 50% uh year and was operating cash flow positive for the first time since his inception >> right >> so it's a very different reality from where we were 20 months ago and you know uh we're very proud of that >> and I'm curious that you use the word unconstrained ambition because one of the things that you talked about is the company has been operating cash flow positive for the first time in its history and my read on it was okay we are returning to focusing on growth now and growth at all costs sometimes can can yield you know um dicey results you know as we've seen with many different companies in in Silicon Valley and so my question for you is how do you plan to spark this new phase of growth I guess while growing profitably I And you know that is the constraint that comes with this ambition, right? >> Absolutely. So, so, so when we say unconstrained ambition, really what we mean by that is if we just look at the market that we're in today, and I think folks don't necessarily appreciate that, uh, there's $2 trillion of corporate card spend in the US and Brex today is like, you know, a little bit over 1% of that. And, uh, and, you know, if you look at all the new players combined, right, we're maybe two two and a half% of the market. So, this is a market that's very deeply dominated by incumbents. So you have banks that have been around for decades serving customers in a very poor way uh with no software with no way of actually improving the way they run their business and and when we look at the way customers run their operation with Brex and you see you know companies like ARM cursor intel andropic pounds here right all sort of materially changing how their business operates because they partner with Rex that is really what we're talking about how do we bring this spirit and and this and this product that we have working so well for this tiny sliver of the market, this 1% of the market into the, you know, this 98% that's still dominated by income. And that's really what we mean by unconstrained ambition. And we >> So h how do how do you do it? How do you do it? >> Is just continue to execute the same level of rigor raising the bar every day. uh and and just really when you look at the market and you just realize that most people actually have no idea what Brett is or that there's even a better way to think about how you manage your finances as a company and and that's really a very big part of the story and especially now if you see what's happening with AI you know we think there's this bigger opportunity to not just build the financial services which is what we did early on and the software but all you know effectively all the infrastructure that you build to help these companies replace all the labor that you have traditionally doing work that can now be automated and we're very excited about the opportunity. And what do you see as the next phase of of fintech broadly speaking? Because fintech is it's it's had a period where we had the zer era, we sort of had the reckoning era and now people are sort of trying to figure out okay what does the next few years look like in your mind? Let's make some predictions here. What are we going to see? >> Yeah. So I I have a saying that internally and I guess externally as well that fintech in the US hasn't really happened yet. So when you look into the percentage of the market that is using a modern solution like Brex, it's so tiny still. So a lot of the work is just getting customers there is just literally going after every single business in America that using a modern solution and explaining them, hey, you shouldn't be using American Express. You shouldn't be using your bank card anymore. You shouldn't be using your traditional billbased solution. And here are the benefits of bringing this all under Brex and how it helps your business move faster, spend smarter, right? and all the benefits that we see customers as they deploy a solution like Brax in their team. So uh so so I think that's one which is you know fintech hasn't really happened when you just look at sort of a very mainstream use case. >> Um the second one is when you look into what we build right and you know we made a few decisions that I think were pretty different in other fintexs you know everything that you have on the financial services side was built inhouse. So all the card, payment rails, uh you know, capital markets, underwriting, credit, we build the entire sort of bank stack in-house. Then we build this partner ecosystem that surrounds our customers, especially larger ones with every single solution they need, they have deep integrations of Rex and we did it slowly, right? So when you look into sort of the the breadth and the depth that you have to have to serve these very sophisticated use cases, right? I think that's something that I think will be more of a trend that having that in fintech as well. I do want to ask you, RAMP raised a ton of money. You guys must be raising too, right? >> So, I mean, it's a there's a very very good validation in our space that there's huge companies to be built here and we're very excited about it. >> Are are you raising? Are you are you out there fundraising? >> We're not raising. >> Not raising. Okay. Brex is not raising. So if you're not raising and you know on the on the heels of of this profit operating flow uh can't speak today operating cash flow positivity that you guys have achieved what is the strategy here to compete with companies like ramp >> so first when you look at the size and sheer scale of the market right really the competition is American Express the big banks that is what we see you know 90% of the deals like that that is who we're competing with and when we when a lot of what we try to do and sort of educate the market is when you go actually look at the deals that we're in and actually the competition. Like who we see is big banks that are treating customers the same way. And that's really that's really who we're trying to to to win against. That's really the competition for us. And we see a lot of the new players in their space actually almost as a forcing function to help the industry change and realize that there's a better way of doing things. So, so for us that's that's really the competition. It's just the the amount of incumbent banks that treat customers with a solution that is so subpar from where they are from where they were maybe four or five years ago. And then when you add an AI and just the lack of awareness and understanding of how to build a product that actually fundamentally changes how financing operates um the the bar is exceptionally low and that's really like who we compete with. >> Right. Great. Well, Pedro, I want to thank you for for coming on the show. We really appreciate it. I am excited to see what new products you you have in store for us because one of the things you talked about in your memo was that you've got a lot of stuff under the hood which means I'm excited to see it rolling out. That is Pedro Franchesci, the CEO of Brex. Thank you so much for joining us here on TITV.