How Does Brex Make Money? Business Model of Brex


How Does Brex Make Money

Brex is an all-in-one fintech solution for businesses that want corporate credit cards and bank accounts. The company’s goal is to provide better banking to businesses.

Brex primarily makes money via interchange fees. The company also makes money from subscription fees, loans, and referral fees from partners.

Founded in 2017 by Henrique Dubugras and Pedro Franceschi, Brex originally started as a VR company. It was called Beyond, but the founding duo canceled their plans after a few weeks.[1] When they joined the Y Combinator program, they failed to get a business credit card due to insufficient credit history.

This prompted them to create a fintech company instead. Their goal was to create something that provided better options and more accessible services with unique rewards that would encourage businesses to use it instead of banks. Brex was partially inspired by Pagar.me, a fintech project the duo had developed in 2013.

What is Brex & How Does It Work?

Brex is a fintech company that offers business credit cards and cash management services to companies that are in their early growth phase. Customers love its quick approval process and automated data management that helps with bookkeeping.

Brex’s API also integrates seamlessly with existing software solutions like Oracle NetSuite, Sage, Xero, and QuickBooks. With Brex, businesses can get credit cards without personal guarantees. And the credit limit is usually much higher compared to cards offered by traditional issuers under similar conditions.

With Brex credit cards, business owners can focus on sustaining and growing their business without worrying about their assets being seized if they default. The company also doesn’t require a prior credit history. Instead, it checks a company’s bank balance and financial activity to create a custom-tailored lending profile. As a business increases revenue and expands services, Brex will automatically adjust credit limits to keep up with the growth.

In addition to flexible and customer-centric lending protocols, Brex also provides businesses with spend management through its Empower software system. Transaction records, permissions, card management for individual employees, and financial statements can be accessed through a dashboard in the app. The dashboard also allows accountants to break down revenues on the basis of categories.

Brex also allows financial controllers and team leaders to assign budgets for a task. This can be done in local currencies for numerous countries across the world, which makes Brex an excellent choice for businesses that have international workforces or operations.

Managers can set expense policies for groups of employees and provide these employees with an automated receipt generation option. By encouraging responsible spending, Brex helps teams stay within budget. Meaning businesses can extend their cash runway and sustain operations more efficiently.

Businesses can get both physical and virtual credit cards from Brex. These cards can be programmed with custom policies for preapproved spend limits. Categories include travel, food, office supplies, recurring software expenses, rent, utilities, and more.

Offsite employees can request reimbursements into their local bank accounts. Once approved by the administrator, the amount is credited within two days. By automating the bookkeeping process, Brex saves time for managers.

With Brex, managers only need to focus on spending anomalies and exceptions rather than going through the entire list of expenses. Brex also integrates with accounting software like QuickBooks, which further streamlines the accounting process for businesses. All of these systems are available on the Brex mobile app.,

Which makes it an excellent choice for agile, decentralized startups operating around the globe. Brex adds value back to the company by rewarding expenditures with cashback points. Things like ridesharing, dining, and travel earn Brex Points, which can be redeemed in exchange for statement credit.

The points can also be used to make reservations on Brex’s travel portal. Employees can buy gift cards and get cash backs with their reward points. These points keep stacking up and never expire, even after a Brex card has hit its spend limit.

Currently, Brex serves a wide range of companies. Most of these are tech startups and ecommerce brands. Signing up for a qualification check on Brex doesn’t affect your credit score and approval can be done in as little as one day.

In addition to its cards, Brex also provides a business account that can be used to send and receive funds. This is not the same as a bank account since Brex operates as a fintech company rather than a true bank. However, it does support ACH and wire transfers around the globe like a regular bank.

Compared to most banks, Brex boasts a high annual yield on its deposits. Businesses can earn up to 2.38% in interest over time. Account statements, monthly reports, and spending patterns can be tracked for multiple accounts through their mobile app.

Brex doesn’t charge any fees for ACH and wire transfers. They can be used without limits, including overseas transfers. Brex partners with licensed banks to offer these services.

The Federal Deposit Insurance Company (FDIC) insures amounts up to $1.75 million in a Brex business account. Brex also ensures that funds from the sales of goods and services are immediately credited to an account. This is extremely useful for service-based startups that operate on tight margins and require immediate cash flow.

Traditional banks have a processing time of several days before the amount is credited from PayPal or Amazon to a seller’s account. Brex also doesn’t require users to maintain a minimum balance. The flexibility offered by Brex encourages many startups to choose it over a traditional bank.

By providing a well-rounded array of financial services, Brex acts as a one-stop solution for businesses who need a finance partner. It provides credit, banking, and planning with a high degree of automation. On top of that, Brex’s API easily works with any existing software integrations that a company is using.

 

Business Model of Brex

Brex follows a business-to-business (B2C) model by acting as a comprehensive financial services provider to startups. It offers both cash deposits and credit cards but applies a slight variation to the formula. Brex incentivizes companies to choose its service over traditional banks by offering several unique incentives and rewards.

It combines banking services and the issuing of corporate credit cards into one platform, which is then governed by a financial management software layer to add further value for the customer. By streamlining the process of bookkeeping and fund allocation, Brex offers a service that traditional banks can’t compete with.

Brex combines the financial management aspect of a consumer fintech service with the corporate credit system of a bank. Thus, the company has created a unique niche for itself. It doesn’t have many direct competitors in this segment of the fintech market.

As a result, Brex doesn’t face much resistance while attracting new customers. Over time, the company has transitioned into new services that are built upon its financial management core. One example is Brex Empower which combines all spend management and market analytics into one subscription-based system.

Brex Empower can be coupled with existing human resource and enterprise planning software systems that a company is using. It supports QuickBooks, Oracle NetSuite, Okta, Deel, and many other services. With Empower, Brex offers companies an easy way to enhance their spend management and resource allocation without disrupting existing workflows.

This helps Brex increase its adoption rate among scaleup businesses that are looking to boost growth and reach new markets. Scaleups are established entrepreneurial ventures who tend to have higher revenue and more backers compared to startups. By attracting them, Brex increases the amount of money it makes through credit card interchange fees.

Larger businesses that are focused on growth tend to have more employees, and higher operating costs compared to small businesses. They also deposit more cash into their Brex business accounts. Brex loans out this money to other ventures and organizations at high interest rates.

That’s how it’s able to pay above-average annual yields to owners of a Brex business account. Brex’s business model is based on providing maximum value to a business by covering all of its financial needs. The company recently opened a venture debt division that attracts businesses that are looking for liquidity between early funding rounds.

By diversifying its revenue streams and incrementally adding value to its fintech platform, Brex boosts profits while also expanding into new market segments. The company is focused on increasing digitization of the B2B market space, which still relies extensively on cheques and manual accounting procedures. This is a market with much room for growth as B2B digital payment penetration is just 36% in the US.[2]

Business-to-customer (B2C) has a market cap that is just over a third of the B2B market. In 2021, it was estimated that B2C payments in the US made up $9 trillion. In comparison, B2B amassed $25 trillion in overall transactions.[3]

However, B2C had a 56% card penetration rate while B2B was lagging behind significantly at just 4% card penetration.[4] The majority of B2B transfers were taking place via cheques, cash, and ACH. Brex aims to turn this around by providing companies with a value proposition that offers them more than a traditional bank.

By delivering personal guarantee-free cards with higher limits, it encourages more businesses to participate in the B2B space. Then, it incentivizes smarter spending through advanced analytics and management tools like Empower. By digitizing every aspect of spending, Brex brings more businesses into the digital realm and generates the potential for future revenue.

Brex’s biggest rival is Mercury, as they offer similar services. Mercury is also a fintech company that provides digitized finance to startups. It also features FDIC-insured savings and checking accounts that operate with the help of partner banks.

Similar to Brex, Mercury allows customizable spend limits on its employee cards. However, it doesn’t have the same level of automation as Brex. Mercury also doesn’t have a service similar to Empower, which is an all-in-one financial management and bookkeeping solution for businesses.

Ramp is another competitor and it has better financial management services compared to Mercury. However, Ramp doesn’t offer a dedicated venture debt service like Brex. Also, its credit card has more limited reward options compared to the Brex card.

There is no data on the financials of Brex, as it is a private company. It is hard to speculate on Brex’s operating costs.

Brex is estimated to have an annual revenue of around $248.5 million per year but it also has considerable expenses.[5] These include things like staffing costs, hosting costs, interest costs, and product development costs.

Due to the lack of data on Brex’s financials, it is unclear how profitable the company’s business model is.

How Does Brex Make Money?

Brex makes money from four different revenue streams. These include interchange fees, subscription fees, loans, and cashbacks.

As Brex is a private company, details about how much revenue it generates from these different revenue streams aren’t public.

Interchange Fees

Whenever a business makes a purchase via their Brex credit card, a transaction fee is charged by Mastercard- the payment processor. Usually, the rate for corporate cards is around 2.7%.[6] But the amount charged can vary based on the exact card issued.

The merchant’s bank sends this fee back to Mastercard. Who then splits a portion of it with the card issuer. That’s the interchange fee received by Brex on each transaction.

Brex tries to attract larger businesses because they generate more interchange fees. Not only do larger businesses have higher transaction volumes, but they also have higher transaction values. Interchange fees are increased with both volume and value.

 

Subscription Fees

Brex offers an all-in-one financial management service to businesses. It’s called Brex Empower and is delivered through a subscription method. This software suite was initially called Brex Premium in 2021 and had a monthly rate of $49.[7]

Now, it’s called Empower. The service includes bookkeeping, spending policy management, automated receipts, nested budgets, and more. The more customers Brex acquires, the more revenue it will generate from Empower subscriptions.

 

Loans

Brex offers venture debt funding to companies that are looking for an injection of cash to pay off debt between early funding rounds. Venture debt helps companies accelerate ahead of their competitors with a timely funding boost.

Right now, Brex only offers this service to companies with a proven product-market fit and scalable business model.

When offering venture debt to companies, Brex charges interest on the amount. Brex also loans out the cash deposits of customers who store money in its business account. It charges a high interest rate to financial institutions that borrow this money and uses the profits to pay interest to customers.

 

Referral Fees

Whenever a customer redeems their cashback or rewards points on a Brex credit card, the company earns referral fees. Merchants pay Brex for bringing additional traffic to their store or website.

Partnered companies include Zoom, AWS, HubSpot, and Indeed.

 

Brex Funding, Valuation & Revenue

Brex is currently a private company, and its financials aren’t available to the public. Right now, it is unclear what the company is valued at.

However, Brex raised $1.5 billion in funding over 12 rounds between 2018 and 2022. Notable investors include Greenoaks Capital, Madrone Capital Partners, DST Global, TCV, and GIC.[8] The company’s latest funding round was a series D round in May 2022, during which it raised an undisclosed amount.

Brex’s last disclosed valuation was $12.3 billion when it raised money through a series D funding round in 2021.[9] Annual revenue for Brex is estimated to be around $248.5 million.[10] But there is no official report to verify this.

Recent developments in funding and staffing suggest that Brex is looking to increase its market penetration and attract larger businesses. Between 2020 and 2021, the company more than doubled its valuation by going from an estimated $2.9 billion to $7.4 billion.[11] With a series D funding round in October of 2021, it nearly doubled its valuation once again at $12.3 billion.[12]

 

Is Brex Profitable?

Brex is likely not profitable. The company has been securing near-constant venture capital funding for the past few years and has raised over $1.5 billion.[13] However, that’s not uncommon with fintech companies. They often raise funds not because they’re not generating significant revenue but because their growth is capital intensive.

Brex’s financial prospects seem positive. Its valuation has doubled nearly twice between 2020 and 2022, going from $2.9 billion to $12.3 billion.[14] Its annual revenue is currently estimated to be around $248.5 million.[15]

Brex’s recent shift in business strategy could spell more growth for the company. Brex is now focused on acquiring more high-value customers. It is targeting scale-ups rather than startups, which should result in more revenue through interchange and subscription fees. That new strategy will likely bring the company closer to profitability.

 

Conclusion

We hope you enjoyed our guide to Brex’s business model. Brex is on a mission to help entrepreneurs grow their companies faster by offering everything they need to manage their finances and spending. 

If you have any questions about our analysis of how Brex makes money or would like to share your comments on Brex’s business model, feel free to email us directly or reach out through any of our social media channels.

If you’re an entrepreneur looking for ways to grow your business without worrying about your finances or spending, check out Brex’s website at brex.com.

Thanks for reading!

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