Recap: The New Financial Playbook: New Banking Strategies

The tech sector was taken by surprise when Silicon Valley Bank collapsed back in March. Startups faced uncertainty around what the news meant for their money and questions about how to make payroll arose. Brex —the six-year-old fintech company that specializes in credit cards and spend management solutions—took quick action by maintaining credit limits on their cards and establishing an emergency credit line 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 what the last few weeks have been like, and what the landscape looks like now.

Dubugras described the immediate effects, when 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’re getting to this point where everyone has calmed down, they have their money, and no one’s losing payroll anymore. There’s a lot less panic now. But given all that’s happened, companies are wondering, now what do I do?”

An Open Banking Relationship

Is it better for companies to keep all their funds within one bank, or to diversify with the aid of specialized fintech companies like Brex? Dubugras advises startups to move away from putting all their eggs into one banking basket. “Let’s say that you’re keeping everything in one bank—you have an operating account, you have a loan, you have treasuries and you have a mortgage. If you want to have one banking relationship, you need to win all these things in order to be competitive. But if you’re OK with having two or three relationships, then you don’t need to win all these things. You can just win one and be really good at it.” This is where Brex fits in. “We’re saying, ‘Let us manage spend. You can have all your other stuff from the other banks. We just want to do this piece of it.’ I think people want a diversification of relationships.”

“Lending Is Leverage”

Is it wise for startups to proactively go after lending right now? Dubugras goes back to an old saying of 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’s very powerful. It’s a good way to get leverage on your profits in your capital. But you need to be very certain of what you’re doing, because it can take down your company.”

Big Banks Are Still Critical for Fintechs

Lessin asked how Brex looked at banks as competition. Dubugras revealed that he doesn’t see them as competitors. Instead, he sees them as essential to Brex’s business. “You’re required to work with them for almost everything. So you’re always going to 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 for fintechs.”

How Startups Can Win: Cut the Red Tape

Despite an uncertain banking environment, Dubugras urged startups not to be overcautious. “I think that the right way to manage costs is not by adding so much bureaucracy that no one can do anything. Your advantage as a startup is being nimble and moving fast. If you kill that, you now have the same disadvantages of a big company without actually being a big company. Instead, empower people and say, ‘This is our budget. I’m sorry it’s not more, but we’re going to have to make it work. I’m going to empower you to do the best you can with it.’ Let constraints breed resourcefulness. Cut costs, be more nimble, do more with less. But don’t become bureaucratic and slow before you’re a big company. Otherwise you’ll lose your edge.”

The Future for Banking Is in Fintech

Even in this uncertain banking environment after the SVB failure, Dubugras believes startups have options that can still bring them great success. But not just startups either - mid-market and enterprise businesses are in the same boat and continue to embrace fintech en masse. By using a smart combination of banking and fintech services like Brex, companies can have 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 may just be fintech’s most important moment yet.