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So this is cool, and I hate my current business bank (Bank of America). I've been waiting for someone to tackle the "banks suck" problem. But FTA: -- "It’s

by nlh 7y ago

So this is cool, and I hate my current business bank (Bank of America). I've been waiting for someone to tackle the "banks suck" problem. But FTA: -- "It’s not a bank, but in practice, it can replace a bank"...Brex now has many similarities to a bank...Brex Cash is backed by the Securities Investor Protection Corporation (SIPC), a nonprofit agency overseen by the U.S. Securities and Exchange Commission that insures up to $500,000 and specializes in protecting customers of brokerage firms from the loss of cash and securities. -- Can you guys elaborate on this in non-marketing/PR speak? If it looks like a duck and walks like a duck... Yes - I understand that legally a "bank" is a very specific and highly-regulated thing, so what this sounds like to me is that it's hard to expensive to launch a bank, but if you launch something that's basically a bank without calling it a bank (but in partnership with a bank) you can get around the regulations. Do we want you to be getting around the regulations? Are those regulations in place to hurt or help us (the business owners)? I'm genuinely curious here -- I am seriously excited about a real, digital-first, intelligent, non-physical business bank. But I'm immediately concerned that you're trying to "move fast and break things" and frankly I don't really want that when it comes to my business checking account. Thoughts? EDIT: I'd missed Pedro's post when I wrote this. To quote: ...because traditional banks separate checking and savings accounts, customers earn a lower yield on their money as a whole. Instead, we chose a different structure: customers put their cash into Brex Treasury LLC, a registered broker-dealer affiliate of Brex Inc., that invests the cash in low-risk securities, such as U.S. Treasuries. This sounds..."clever". Do I want my corporate card to be clever? Totally! Be clever. Do your thing and put Amex into the ground. Do I want my bank to be clever? I'm not so sure...

ritikm 7y ago
[PM on Brex Cash here] Thanks for the response, all great questions. Answers below: > Can you guys elaborate on this in non-marketing/PR speak? If it looks like a duck and walks like a duck… Brex Cash functions like a checking account, but the structure behind it is different. Traditional banks separate checking and savings accounts, which means customers earn a lower yield on their money as a whole. To be able to offer yield in all of the funds, we use a different structure: customers put their cash into Brex Treasury LLC, a registered broker-dealer affiliate of Brex Inc., that invests the cash in U.S. Treasuries through a money market fund. This means that while we don’t offer FDIC insurance, funds are held in low-risk securities backed by the U.S. government. > Do we want you to be getting around the regulations? Are those regulations in place to hurt or help us (the business owners)? Brex Cash is regulated as a broker-dealer, by FINRA. This is a well known structure used by Fidelity and other large financial institutions to offer similar products offering higher yield cash accounts. > I’m genuinely curious here — I am seriously excited about a real, digital-first, intelligent, non-physical business bank. But I’m immediately concerned that you’re trying to “move fast and break things” and frankly I don’t really want that when it comes to my business checking account. Totally understand the concern, and this is top of mind for us as well. We’ve spent over a year building the right technical, regulatory, and financial foundation to make sure we can scale this product. This is a product that we have built to be resilient and not to move fast and break things -- when it comes to customer’s money, we simply don’t do that. We’ve been working with customers for months to make sure the product functions well. Lastly, we’re rolling it out slowly, starting with an early access program for existing customers. Our motto internally is: “The Brex Cash rollout should be boring” :).
- tempsy 7y ago
  IIRC this is what Robinhood did when they tried to launch their 3% APY account. I guess where they went wrong was calling it a “checking and savings account”? I thought they also got in a bit of hot water with the SIPC because the insurance isn’t meant to insure “checking account” like products, which is essentially what this is, no?
  - deleted 7y ago
    [deleted]
  - perl4ever 7y ago
    Based on what I read, the problem was not which magic words were used, but the nature of the product.
    - tempsy 7y ago
      Ok, so how is Brex different in this case? Both are effectively checking accounts, except one is for businesses and the other was for retail customers.
      - perl4ever 7y ago
        I don't know how Brex is different, that's pretty much the theme of my comments in this thread.
- perl4ever 7y ago
  Quote: "SIPC protects cash that is deposited with a brokerage firm for one limited purpose….the purpose of purchasing securities,” says Harbeck. “Cash deposited for other reasons would not be protected. SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose." It sounds to me like this would apply to you just as to Robin Hood's ill-fated product. Just saying "we're a broker and cash sweep into a money market fund is what brokers do" doesn't seem like a meaningful argument. Why are you different?
ryanmickle 7y ago
If anyone is interested in a bank built for startups, also worth a mention is Mercury.co. Been using them since their alpha, and I'll never use SVB or Wells Fargo or any of the traditional banks again. They have obsessively good support, do everything you need them to do without having to go into a branch, are backwards compatible for everything you need from a bank account, you basically just set it and forget it, and best of all it's completely free.
- tempsy 7y ago
  Worth disclosing if you are an advisor or investor. From your Twitter feed it look like you might be? I’m not affiliated with either, but from the looks of it Brex has no fees for wires unlike Mercury and offers a higher APY than Mercury as well. For a startup thinking of using Brex it seems like it’d make more sense to use Brex for banking needs vs something else for simplicity. It actually makes me wonder why Mercury chose not to do YC? I honestly think an unrecognized risk here is that if you’re a startup in the business of selling a product to other startups it seems like you have more to gain (and a lot to lose) by not going though YC since you lose out on a lot of customers that’d use you just for being in YC. Now that there’s a YC company that is competing with you as a non-YC co you will lose every time to win that business.
  - ryanmickle 7y ago
    You’re absolutely right. I’m an investor but I’d have said exactly what I did either way. Part of my being opinionated about the subject stems from having built Founderkit, which compiled terrible reviews of SVB, batch after batch. I hated seeing YC companies join just for the brand or “network” then end up completely let down by the service. When I switched away from conventional banks (Wells Fargo in my case), I was surprised how many edge cases there are in banking, so while I love the idea of positioning a new product as a new thing, there seem to be many features and cases when I’d simply want the best bank, period, run by a team whose livelihood depends on serving me so my team, investors, and customers are never left hanging. On the YC point, it’s none of my business why the founders didn’t do YC again. The CEO was a partner so he very likely was given the option. Since the YC deal can vary with more experienced founders or later stage companies, it simply comes down to the deal offered to your startup. And if you have great relationships with VCs and the tech community already, perhaps it’s an option you’d forgo. And while YC companies are typically excited to try a service that came out of YC, in my experience that has to do with the continued involvement of the founder(s) with with YC (on the forum, offering deals, speaking, etc.). YC founders are smart, and they’re going to choose the best tools for their business every time. But the do YC again question is for the founders to have decided, and I’m sure they considered the option deeply. Anyway, appreciate the thoughtful reply to my comment.
empath75 7y ago
“My startup failed because our bank tried to get cute with financial regulators” doesn’t sound like a great story to tell in the future.

by nlh 7y ago

ritikm 7y ago

[PM on Brex Cash here] Thanks for the response, all great questions. Answers below: > Can you guys elaborate on this in non-marketing/PR speak? If it looks like a duck and walks like a duck… Brex Cash functions like a checking account, but the structure behind it is different. Traditional banks separate checking and savings accounts, which means customers earn a lower yield on their money as a whole. To be able to offer yield in all of the funds, we use a different structure: customers put their cash into Brex Treasury LLC, a registered broker-dealer affiliate of Brex Inc., that invests the cash in U.S. Treasuries through a money market fund. This means that while we don’t offer FDIC insurance, funds are held in low-risk securities backed by the U.S. government. > Do we want you to be getting around the regulations? Are those regulations in place to hurt or help us (the business owners)? Brex Cash is regulated as a broker-dealer, by FINRA. This is a well known structure used by Fidelity and other large financial institutions to offer similar products offering higher yield cash accounts. > I’m genuinely curious here — I am seriously excited about a real, digital-first, intelligent, non-physical business bank. But I’m immediately concerned that you’re trying to “move fast and break things” and frankly I don’t really want that when it comes to my business checking account. Totally understand the concern, and this is top of mind for us as well. We’ve spent over a year building the right technical, regulatory, and financial foundation to make sure we can scale this product. This is a product that we have built to be resilient and not to move fast and break things -- when it comes to customer’s money, we simply don’t do that. We’ve been working with customers for months to make sure the product functions well. Lastly, we’re rolling it out slowly, starting with an early access program for existing customers. Our motto internally is: “The Brex Cash rollout should be boring” :).

tempsy 7y ago
IIRC this is what Robinhood did when they tried to launch their 3% APY account. I guess where they went wrong was calling it a “checking and savings account”? I thought they also got in a bit of hot water with the SIPC because the insurance isn’t meant to insure “checking account” like products, which is essentially what this is, no?
- deleted 7y ago
  [deleted]
- perl4ever 7y ago
  Based on what I read, the problem was not which magic words were used, but the nature of the product.
  - tempsy 7y ago
    Ok, so how is Brex different in this case? Both are effectively checking accounts, except one is for businesses and the other was for retail customers.
    - perl4ever 7y ago
      I don't know how Brex is different, that's pretty much the theme of my comments in this thread.
perl4ever 7y ago
Quote: "SIPC protects cash that is deposited with a brokerage firm for one limited purpose….the purpose of purchasing securities,” says Harbeck. “Cash deposited for other reasons would not be protected. SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose." It sounds to me like this would apply to you just as to Robin Hood's ill-fated product. Just saying "we're a broker and cash sweep into a money market fund is what brokers do" doesn't seem like a meaningful argument. Why are you different?

ryanmickle 7y ago

If anyone is interested in a bank built for startups, also worth a mention is Mercury.co. Been using them since their alpha, and I'll never use SVB or Wells Fargo or any of the traditional banks again. They have obsessively good support, do everything you need them to do without having to go into a branch, are backwards compatible for everything you need from a bank account, you basically just set it and forget it, and best of all it's completely free.

tempsy 7y ago
Worth disclosing if you are an advisor or investor. From your Twitter feed it look like you might be? I’m not affiliated with either, but from the looks of it Brex has no fees for wires unlike Mercury and offers a higher APY than Mercury as well. For a startup thinking of using Brex it seems like it’d make more sense to use Brex for banking needs vs something else for simplicity. It actually makes me wonder why Mercury chose not to do YC? I honestly think an unrecognized risk here is that if you’re a startup in the business of selling a product to other startups it seems like you have more to gain (and a lot to lose) by not going though YC since you lose out on a lot of customers that’d use you just for being in YC. Now that there’s a YC company that is competing with you as a non-YC co you will lose every time to win that business.
- ryanmickle 7y ago
  You’re absolutely right. I’m an investor but I’d have said exactly what I did either way. Part of my being opinionated about the subject stems from having built Founderkit, which compiled terrible reviews of SVB, batch after batch. I hated seeing YC companies join just for the brand or “network” then end up completely let down by the service. When I switched away from conventional banks (Wells Fargo in my case), I was surprised how many edge cases there are in banking, so while I love the idea of positioning a new product as a new thing, there seem to be many features and cases when I’d simply want the best bank, period, run by a team whose livelihood depends on serving me so my team, investors, and customers are never left hanging. On the YC point, it’s none of my business why the founders didn’t do YC again. The CEO was a partner so he very likely was given the option. Since the YC deal can vary with more experienced founders or later stage companies, it simply comes down to the deal offered to your startup. And if you have great relationships with VCs and the tech community already, perhaps it’s an option you’d forgo. And while YC companies are typically excited to try a service that came out of YC, in my experience that has to do with the continued involvement of the founder(s) with with YC (on the forum, offering deals, speaking, etc.). YC founders are smart, and they’re going to choose the best tools for their business every time. But the do YC again question is for the founders to have decided, and I’m sure they considered the option deeply. Anyway, appreciate the thoughtful reply to my comment.

empath75 7y ago

“My startup failed because our bank tried to get cute with financial regulators” doesn’t sound like a great story to tell in the future.