Why did Brex really decide to give up small and medium-sized enterprises? – TechCrunch

Welcome to The Interchange! If you received this in your inbox, thank you for registering and voting trust. If you are reading this as a publication on our site, register TIMES so you can get it directly in the future. Every week I will watch the hottest fintech news from the previous week. This will include everything from funding circles to trends to space-specific analysis to a hot attitude towards a specific company or phenomenon. There’s a lot of fintech news, and it’s my job to stay up to date – and make sense of it – so you can stay up to date. Come on! – Mary Ann

Last week was a real train ride in the world of fintech. I had the feeling that for every round of funding I covered, I also reported a dismissal. Together with real estate technology companies Redfin and Compass, they laid off more than 900 workers, while Notarize and Wealthsimple made their own layoffs. In the controversial world of the startup scene, proptech HomeLight raised $ 60 million and acquired another startup.

Meanwhile, insurtech Sana also raised $ 60 million and says it has doubled its valuation. But the biggest news of the week – which some would say shook the fintech world – was that decacorn Brex has revealed that it will no longer serve small and medium-sized businesses (SMBs). TechCrunch delves into the news in three separate parts and I will go into part of the background of all this here. So, don’t go anywhere.

Brex disrupts small and medium-sized enterprises

Three months after its announcement will make a big push in software and enterprise, fintech giant Brex has confirmed that this is clearly the case segment abandonment began to serve – small and medium enterprises.

Now there was some confusion about what that meant. SMEs like ordinary businesses? SMEs as start-ups? I spoke with Brex CEO and co-founder Enrique Dubugras to give some clarity. What he told me may not have been as comforting to some of our readers as the company hopes.

Dubugrass emphasized that Brex, which started its life focused on start-ups, “remains committed to startups”. Asked about the criteria for determining which businesses will be affected by his move, he said Brex had chosen not to work with a business that did not have some kind of “professional” funding – or venture capital, angel money or accelerator funding. . As a result, “tens of thousands” of businesses have been told their accounts will be closed from August 15. Dubugras acknowledged that the set of criteria may not have been “perfect”, but that there should be one.

Although the CEO seemed appropriately remorseful, the move still angered some who believed the company was leaving customers who needed it most in trouble. Comments range from bitterness that Brex acts without regard to “the people who built them.” One SMB owner who was affected tweets about his disappointment with the way the company handles the situation, noting that Brex has left it “and other SME owners to dry up”. Another tweets the message received from Brex: “What an inconvenience, this closing of an account for Brex sucks. I used it for one of our digital properties with minimal turnover, I guess they are clearing the miners. “

Many were disappointed that only small and medium-sized enterprises, which already had some funding, were retained. One commenter on my LinkedIn post said: “Small business owners need help now in these times of uncertainty, not to be abandoned in this way.”

He is not wrong. “Tens of thousands” are many companies that have 2 months to invent something else. As one person told me, “The scale of this is really remarkable.”

But at the same time, this move may not be as shocking as it was for almost everyone I spoke to on the subject – from founders of competing companies for industry observers. That’s why. As mentioned above, in March the company made a big deal on how to enter the software business and focus more on acquiring corporate clients such as DoorDash. Besides, it’s just a fact – and as Enrique himself admitted – that the needs of a small business are very different from the needs of a larger company. Inclusion, sales, almost everything related to the service of this segment is very different. In addition, there are rumors that Brex simply did not earn enough money from working with small and medium-sized enterprises to justify continuing this, with one domestic industry saying: “I think operating costs, fraud costs and risk costs are combined with big prizes they handed out just made it a bad segment. ”

Historically, Brex has made most of its money from exchange fees, which many would argue are low margins, so switching to a SaaS model may make sense. It would be especially sensible when the macro environment has changed so much since the last Brex recruitment and was valued at $ 12.3 billion. As investors now demand more revenue than ever (and profits) to justify high ratings, Brex may feel the need to focus more on growing its SaaS business. But doing so at the expense of his SME customers just felt … wrong. And let’s also keep in mind that it is still building its SaaS offering.

Others pointed out how difficult it is to be “everything for everyone” and that this Brex decision is a reflection of how true this is. When I spoke to Enrique, he said that his start-ups “need us to be more proactive with their needs.”

“They asked us for a lot of resources that we wanted to give them, which had to be diverted elsewhere,” he said.

Former employees have shared their belief that the company lacks focus and is moving in too many different directions. In January, Brex confirmed that raised $ 300 million in a round of the D-2 series, which raised its estimate to $ 12.3 billion. In his 5 years of life, he has raised $ 1.2 billion.

All I know is that as a journalist covering fintech, this type of change in strategy from decacorn to Brex has hit a lot of negative chords in many people. What we are all wondering now is … will the strategy backfire or will Brex’s decision turn out to be the best it could do for the future of its business? Only time will tell.

Image credits: Brex

Weekly news

Once Apple shakes up the market purchase now, pay later with news that he would be a competitor now for established companies, introduced PayPal another purchase now, payment later product to follow 2020 launch of its installment program “Payment of 4”. The new offer, PayPal Pay Monthly, is designed to give customers a more flexible way to pay, said the US payment giant. Instead of having to pay for purchases over a period of 6 weeks, as before, Pay Monthly users can break down the total cost of monthly payments over a period of 6 to 24 months.

The housing market made a huge hit this year as mortgage rates rose and homeowners cut back on purchases. The latest victims in the world of proptech are Redfin and Compass, both of whom announced cuts last week it totaled about 920 people. “I said we wouldn’t fire people unless we had to,” said Redfin CEO Glen Kelman. “We have to.”

Canadian fintech giant Wealthsimplewhich was valued at $ 4 billion last year, said so reduction 159 people – or about 13% of its staff. CEO and co-founder Michael Kutchen addressed the move in a letter to employees, which was published as a blog post, noting that Wealthsimple customers “are experiencing a period of market uncertainty they have never experienced before.

Notarize, a start-up company that offers remote online notary services, laid off 110 people – or 25% of its workforce. In a statement released last week, CEO and founder Pat Kinsel hinted that the possibility of securing additional funding would be a challenge. Read more TIMES.

Klarna is considering raising more capital at an even lower rating from what was announced a few weeks ago, according to Wall Street Journal, who quote people familiar with the situation. The Swedish payment giant is reportedly in talks with investors over a deal that could value the company at about $ 15 billion. Last month, it was projected to raise additional capital at an estimated $ 30 billion, a significant reduction from $ 45 billion was evaluated last year.

Plaid announced last week that he was opening an office in Toronto – a market that entered the first international market in 2018 – and that it has entered into a data access agreement with the Royal Bank of Canada, the fifth largest bank in North America. I spoke to several news executives, and although I unfortunately did not have time to cover them in the form of a story, they said the agreement would lead to secure, API-based financial access for more than 14 million RBC digital customers who will be able to connect “securely” to over 6,000 applications and services on the Plaid data network.

India has lifted business restrictions on Mastercard, nearly a year after the ban was imposed, again allowing giant cards to add new customers to the South Asian market after demonstrating “satisfactory compliance” with local data retention rules, the central bank said last week. Manish Singh gives us the information TIMES.

Financing and mergers and acquisitions

Seen in TechCrunch

PayCargo, a fintech for the freight industry, is raising $ 130 million

Able.ai steps out of stealth with $ 20 million to help big lenders speed up high-value borrowing

Auxilius Receives $ 10 Million to Help Biopharmaceuticals Manage Financial Aspects of Clinical Trial Process

Sana, which offers health insurance plans for small and medium-sized businesses, is raising $ 60 million and doubles its October estimate

Cube, who wants to help financial teams plan better and faster, receives $ 30 million after seeing 400% ARR growth

Amid layoffs in the real estate technology industry, HomeLight raises $ 60 million and acquires startup Accept.inc for lending – “[…]Flat estimates are new, ”said the CEO, as the company raised its estimate from $ 1.6 billion to $ 1.7 billion.

Mono aims to be the “first bank without banking” for small businesses in Latin America

Seen elsewhere

Brazil’s Zippi raises Tiger Global to $ 16 million Serie A to $ 16 million Serie A to improve PIX micro-entrepreneur lending solution

The Islamic investment platform Wahed provides $ 50 million in funding

BNPL fintech KEO World with a focus on small and medium-sized businesses completes funding of $ 20 million

Well, that’s all for this week. Once again, thank you for reading – and Happy June 10th !! Until next time. xoxo, Mary Ann

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