Art Levy, Chief Business Officer at Brex, on the strategy of Brex Embedded

We’re taking on all the capital risk, fraud risk, and payment risk. It is a distribution play, and so similar to other distribution referral partnerships, that is the DNA of Brex Embedded. It's really about creating stickiness and delighting the customer from both our perspective and the partner's.

We make the partner's product better, and they make our product better. We make Coupa's platform better and more holistic with our integrated embedded solution. Customers say they're more satisfied with Sabre because of the way we power Sabre Direct Pay.

As far as traction, we've already processed nearly $1 billion annualized run rate of payments through the three partners that we disclose—Sabre, Navan, and Coupa.

Card issuing companies like Marqeta and Lithic enable software businesses to launch cards. What’s the positioning of Brex Embedded with respect to Marqeta? When would a company go with Marqeta and when should they use Brex Embedded?

It's a great question. To clarify, Brex is not in the card issuing business, and we're not offering a white label product. That's the first key difference. If companies are looking for a fully white label product, they're not going to choose Brex Embedded.

The opportunity that we saw, and what we're seeing much more in the post-COVID world, is that vertical B2B SaaS platforms are realizing that managing a card program, especially a global one, is actually very challenging. Just using Stripe Issuing doesn't get you even halfway there, because you still need to manage the credit risk, fraud risk, and capital risk, just to name a few things.

Brex Embedded offers a tech-first global card where companies can offer their customers a true 30 day charge card, embedded in their platform.

Can you explain in a little more detail, for folks who might not have in-depth knowledge, how your infrastructure enables you to do this?

Unlike some of our competitors, Brex is directly integrated with Mastercard. There is no issuing or processing platform in between. All of the other disruptive competitors of Brex are using either Stripe Issuing, Lithic, or a similar platform between them and the card network. We are not doing that.

With Brex, we can much more quickly turn on that country. We've already turned on 120 countries, and if we're making a sale, we can just say, "Absolutely, in 3 months we will have that country live." We can go and do the work directly with Mastercard and our partners globally.

In contrast, any of our competitors needs to go to Stripe or Lithic and say, "Hey, I have an end customer that wants this global offering. Can you prioritize Malaysia?" It needs to get on the product roadmap, they need to understand the revenue related to that customer, and there's just a much slower shipping cycle.

This is an example of why the core global plumbing that Brex has built over the past few years is very relevant to what makes Brex Embedded so special.

With programs like Lithic, Marqeta, or Stripe Issuing, you can choose for them to “program manage” the relationship with the bank and handle a lot of the time-consuming back-end work, including compliance issues. How does that compare to what Brex is doing?

There are different work streams. There's the pain and annoyance—let's call it efficiency losses—of managing the bank and managing the card network. These program managers (Stripe and Marqeta) fill that customer need.

That said, they are not taking on the fraud, credit, and capital risks. There is an entire part of the business that they will not take on for you.

If you want to build a card program at scale, you need to raise the debt warehouses for capital. You need to hire the fraud team and hire the credit team. Those are risks that those program managers are not handling for their customers.

Brex Embedded customers like Coupa and Sabre potentially compete with Brex expense management, procurement and travel products. How do those customers think about the nature of competition and cooperation with Brex?

To touch on this “coopetition” nature of partnerships like this—it comes down to the end customer and what they want.

What we’ve realized is that there is a segment of our customer base, specifically startups and mid-market companies, where the all-in-one solution is the best option.

This customer persona is more domestic-only, has fewer employees, and is mostly in fewer offices. They want their bank account, corporate card, travel, and bill pay all in one place, and we are selling that all-in-one product very successfully in that market. This is where we compete with many of our domestic competitors that we've started to talk about.

That being said, when you look at the enterprise segment, specifically the type of companies that Coupa, Sabre, and Navan serve, these are global enterprises with 5,000, 10,000 or 25,000 employees.

For that customer segment, we realized that it's extremely hard to build a global card program, end-to-end procure-to-pay workflows, and a managed travel platform.

In that upmarket segment, we're acknowledging that the customer wants a best-in-class point solution. That's how they buy: it's not the same person making the decision around corporate card, travel, and spend management. There's a travel manager, a procurement manager, and a financial controller. So we want to be best of breed and delight the customer. For us, in that segment, we are just focused on global corporate card and spend management.

How does Navan view card partnerships—is the Brex integration primarily a distribution and retention play, and if so, would Navan look to expand this strategy to other card issuers like Ramp or Rippling?

My understanding is that Navan went through an arc of thinking over the last few years. They have a first-party card, then they expanded to Navan Connect, which was a bring-your-own-card model. Now Brex is their preferred partner for cards.

It's not that they want to go to Ramp, Mercury, and Rippling next. They want to be able to say, "Look, Brex is the best global card. If you have a card that you like, sure, you can use it with Navan. But when you want the best travel payment reconciliation, use BrexPay forNavan."

It's really about making their product better by incorporating Brex into it. Yes, of course, there's the idea that in the enterprise space, we're going to go to market together. For both it's a distribution play in that we're going to go to market together in this segment.

The messaging around the announcement of Brex Embedded heavily emphasized global payments. What’s the opportunity that Brex sees with global B2B payments?

A few years ago, we realized that companies—specifically tech companies, our digitally native core base—were becoming more global. Companies like Deel were born to serve them, and in that context, we asked ourselves how we wanted to take advantage of this global momentum.

We therefore decided to focus on US-headquartered companies if and when they had a global presence. We didn't want to lose out on serving a business that was expanding globally simply because of that expansion.

As our customers grew more internationally, that created more pain points for their finance teams. When we talked to these customers, they would explain how they had to set up different card programs in every country, which obviously was not scalable.

Our goal with having a global focus is to satisfy customer needs for one global limit for all of their employees around the world, high global acceptance, local card and billings, and easy onboarding.

In this way, we're competing much more with global banks like Citi or HSBC than with any of our disruptive competitors. Mastercard has even said to us that they view us as capable of a global issuer as Citi and HSBC now. Of course, we're much smaller than them at this point, but that is a really important point.

The global infrastructure that we built and the way we did it now allows us to compete with much larger financial institutions. We’re not just playing to serve the startup that only has operations in the US.

If Brex can issue cards globally for US companies, what prevents it from serving locally-headquartered businesses in those same markets?

First, let's talk about the customer need.

Running a modern business, especially when you're global, requires the ability to operate in multiple currencies and countries. Companies want to be able to spend in locations where they're operating and traveling, and they also want to add controls and planning capabilities.

Our global platform allows big enterprises to do that. However, the needs of the global enterprise are really around being able to spend locally in a bunch of countries and currencies while maintaining compliance. When we think about focusing on that problem, it's really for global enterprises that have multiple offices, like DoorDash, Coinbase or Datadog.

While it's true that there are certain markets we can automatically serve with our licenses, there are others where we would have to get a local license. This is because Mastercard has something called "follow your customer," where if you're headquartered in the US but you have offices in other parts of the world, we're able to issue you a local card in those countries. But that doesn't always mean we can serve local businesses in every country.

In countries where we could serve local businesses, the reason we haven't yet is simply focus. When you go local, you need to understand the culture and the nuances of how those businesses buy and who they buy from. There's a whole go-to-market motion that's going to require a lot of focus from our team.

I would liken it to when Uber was launching in different countries. They had launch teams, but that obviously took away from their US focus, at least for some time. Right now, there's so much financial opportunity in US-headquartered global businesses that it's not worth it for Brex to take our eye off the ball yet.

There are, however, strong competitors around the world that are focusing on servicing local businesses in those markets with a corporate card. It's not clear to me how or if all of those local Brex clones, as we might call them, will expand internationally.

International M&A is not a focus in the short term. However, from an academic point of view, I do believe there is a consolidation opportunity here.

I imagine that Brex could become a global leader, and that could be a way the market continues to consolidate. We've already seen huge consolidation in the US. There used to be many companies trying to do the same thing that Brex is doing, and now there are only a few. Airbase was bought, Divvy was bought, Teampay shut down. Navan and others have decided to partner on the card side. The last few years have really left the market in a place where there's a bit of a "last man standing" situation in the spend management and card sectors.

What do you think would be the strengths that Brex brings to the table as a hypothetical global consolidator? What gives Brex a right to win in that scenario?

I think that the key to success in that scenario goes back to what I've been emphasizing, which is our financial infrastructure and our global focus.

The fact that we're the preferred partner for Navan and Sabre means we're already serving global businesses, because the end customers of those businesses are clearly global.

I think we're well-positioned because we've built financial infrastructure and global infrastructure, and then we've also built very good software on top of that infrastructure. In today's age, having just a strong application layer is not enough. Brex has been able to build a moat around having that along with the infrastructure.

I also think scale is a significant advantage for us now. We are at a scale where it acts as a moat in the sense that, as we mentioned on this call, there are a bunch of issuing platforms that could spin up a next-generation credit card. However, once you get to scale, you suddenly need to worry about credit risk, fraud risk, capital costs, and debt warehousing. We've seen that making that jump to survive at scale is something not a lot of companies have been able to do.

How does Brex think about its future revenue mix between interchange, subscription SaaS and interest revenue?

We're currently focused on building the best financial product suite to serve our global customers. From there, we'll understand the best way to monetize.

We will continue to monetize through interchange, software revenue, interest income, and foreign exchange fees. Interchange revenue will continue to be the majority of our revenue because we always really land with card and then expand from there to the other suite of products. However, software, interest fees, and foreign exchange fees are growing steadily as a proportion of our revenue if you look at the last few years. As a result, the majority share of interchange is declining.

People like to look at the competition between Brex and Ramp as a horse race. Are Brex and Ramp converging and going tit-for-tat or do you see them diverging and going down different paths? What’s the opportunity for Brex that maybe Ramp doesn’t have?

To put it bluntly, the opportunity we have that Ramp does not is around global and enterprise.

Ramp is built on Stripe Issuing, which means there's middleware between them and their card network, Visa. We connect directly to Mastercard. So in the global and enterprise part of the market, we clearly see ourselves winning because our infrastructure helps us better serve the customer. We're already winning there and we'll continue to win.

For the rest of the market in startup and mid-market, it continues to be extremely competitive. We both have a full product suite. We both have spend management, corporate cards, first-party travel, and bill pay. So there continues to be very direct, explicit competition in those segments.

That said, I believe it's a very big market. This is not, for example, a marketplace model—I think there can be several large companies in the space.

Brex Embedded, the partnership with Navan, and the partnership with Coupa are very explicit validations of our approach in Enterprise.

To play devil's advocate for a minute, if I'm an enterprise buyer, I don't care if Ramp has middleware that you don't have, as long as I get acceptable results. Are there other things that you think might put Brex over the top in an enterprise sale?

It's not about middleware for middleware's sake—I agree that the enterprise buyer couldn't care less what the pipes look like. It's about what those pipes mean for the functionality of the cards.

Specifically, because Stripe only issues cards in the EU, Canada, the UK, and the US, Ramp is not going to have the global capabilities that we have for local cards and billing in over 50 currencies and 120 countries.

For an enterprise buyer, we're going to say, "Look, you want a solution for all your global employees. We have the ability to issue local cards in over 50 countries. We have great card acceptance in 120 countries, and we are the only option that meets the needs of multinational corporations for card and spend management." We also have real-time expense tracking and spend controls and we offer a great employee experience and integrations.

I believe that in the enterprise space, we can clearly say we are the better solution to serve global employees. If a company has no global presence and is domestic-only, then yes, we're going to have to compete directly with Ramp.

In that case, they'll have to evaluate the software and decide which user interface they prefer, or perhaps which one has a better NetSuite integration, for example. But I think the true differentiator is Brex’s global capability.

Can you help me understand in more detail why this is such a key point for a US-based global enterprise? Why is it so important that you have local cards in over 50 jurisdictions and the ability to settle and bill locally? What does that do for them? Does it save them money? Does it make them significantly more efficient? What are the main benefits?

There are two main benefits.

First, it saves companies money because local issuing and billing eliminates certain issues. For very large companies, it would be unacceptable if their employees' corporate cards didn't work everywhere. For example, if we sent you to Malaysia, your corporate Amex would work at hotels and the airport, but it wouldn't work at places like Home Depot. This is because it is a US issued corporate card, and so the issuer would suspect fraud, given that it's a US card being used in an unexpected location.

Let's say you moved to Malaysia for Coinbase and needed to buy office supplies - you would run into the issues cited above. If you're using a local card, you're not going to be paying foreign exchange fees, and you're not going to have problems with acceptance.

On top of that, you have all the controls, planning, and reporting clarity that you want from your Brex solution. You get to have that for the employee who's in that country, regardless of their location, without having to deal with card acceptance issues or foreign exchange fees.

Where does global payment capability rank among enterprise pain points for corporate card and spend management—is it the number one issue? Is it in the top 3, top 5, or top 10? How should we think about and prioritize the biggest enterprise pain points when it comes to corporate card spend management?

I would say it’s number one, and the proof is in the pudding.

Navan is a global travel company. They're the winner in the space from a disruptor perspective, and they've chosen to partner with us for corporate payments to serve their customers who are traveling globally and who are large enterprises.

When you go down market and look at our domestic business, global is less relevant. In that space, we have to win on the all-in-one play. We have to win on getting there first, and we have to win on how the bank account, the card, and bill pay all work together. It has less to do with global capabilities.

But the truth is, there is a very large swath of customers where it is relevant. In payments, or more specifically in global payments, it's the number one issue for enterprise customers at least.

How does Brex think about the competition coming from the rise of B2B neobanks which do expense management like Mercury and Rho?

I think that Mercury and Rho can build strong businesses focusing on domestic banking, which is their angle. However, that's not our vision.

Our vision is around facilitating money movement globally. Yes, we have a domestic banking business, a domestic expense management business, and a domestic card business, but we also have these for global.

I would say our aspirations are much larger than theirs. We feel like we can do what they're doing as well as many other things.

If you think about Mercury and Rho, I personally have not heard about them outside of their core product of banking. I haven't heard about their card products or their spend management products having very strong traction. They really are building a great single product.

Brex, on the other hand, is a platform. We have a number of products that all work well together.

In the enterprise market, is Brex primarily winning as a point solution for cards and spend management, rather than as an all-in-one platform? And how does this strategy play out when partnering with companies like Navan for travel and Coupa for procurement?

We believe Best of Breed wins in the Enterprise, and so Brex is winning in the enterprise with card and spend management. It's the best-of-breed solution for enterprise customers.

Coupa—which was a public company—has a more enterprise-focused base. They only have 3,000 customers or so, but their customers are some of the largest in the world. Their customers want to pay for things all over the world and they want to pay in a procure-to-pay flow with a card that can be a virtual card in any currency.

There's a large company—I don't want to say the name because it's confidential—who came to us and wanted Brex in Coupa because they wanted to pay engineers in Romania with a card.

Brex is literally the only company that will spin you up in one day, underwrite you, and then get you a virtual card to make that payment. At that point, my client sales team can sell that customer the rest of our suite. I can go and sell them the travel & expense (T&E) product and the spend management product because with Coupa, we're landing with the P-card, and with Navan, we're landing with the global T&E card.

In some of the early marketing around Brex Empower, it seemed like it was being positioned as an all-in-one solution for the enterprise. Has there been a shift where Brex Empower is actually more focused on enterprise corporate card and spend management?

There may have been a miscommunication on our part. If you look at Brex's product suite, we have Brex Travel, Brex Bill Pay, Brex Bank Account, Brex Card, and Brex Spend Management.

When we think about Brex Empower, it's really another name for the spend management platform designed to compete with Concur.

Essentially, when we position ourselves in the enterprise market, we're positioning Brex card and spend management as the best-in-class solution. We're saying this is how enterprises buy—they want the best card and spend management solution.

As I mentioned, the decision-maker for travel is different from the one for spend management, which is different from the decision maker for the card. So actually, if you're trying to sell an all-in-one solution, sometimes that can slow down the sale rather than accelerate it.

There’s something like $1 trillion in total global payments being made in the US per year, with about 80% made using checks or other non-card methods. Interestingly, 80% of those transactions were for less than $5,000. How do you think about this long tail of transactions currently made via other means that could be done using cards?

That's a pain point we see with Brex Embedded inside procurement platform workflows. For large spend transactions, people don't necessarily need to use a virtual card, and they don't want the vendor to charge them for the interchange.

However, there's something called tail spend, which is 80% of the transactions but 20% of the cost. For large enterprises, these add up and the simplest way to reconcile them is to use virtual cards for each transaction that then feed into your accounting systems cleanly.

It's for these "cats and dogs" of $5k charges that we're very excited about Brex Embedded.

How crucial is virtual card adoption to Brex's growth trajectory, and where are we in the adoption curve across different enterprise segments?

A rising tide absolutely lifts all boats. There is more virtual card adoption in certain sectors and segments, which absolutely helps our business. For example, in travel, payments have always been run by virtual cards. Companies like Sabre are very familiar with that way of running their business. They're booking all of these flights and reservations, and they use virtual cards.

In procurement, one of the things that has been really helpful is partnering with Mastercard. Mastercard is our infrastructure partner, of course, as we're on their card network. They have an initiative called ICCP, which is about bringing payments to certain procurement and other vertical software platforms.

The idea there is that they are trying to move more B2B spend onto cards, which obviously benefits them. We have been working with Mastercard to approach platforms and convince them to bring virtual cards to their platform. We tell them, "You should consider Brex Embedded for payments on your platform.”

When you think about a company like Mastercard that has made enabling B2B payments on virtual cards a big part of their company strategy moving forward, we're kind of skating with them to where the puck is going.

Is it too early to ask you what markets would be obvious choices for Brex if you did expand globally?

It's too early to tell. We haven't done the analysis yet on that, but I think what I would do is look at where our spend is coming from globally. I want to be very explicit: we win because of our global capabilities, but if you look at our spend, it's still largely domestic.

The point is that companies like Coinbase, Scale AI, and SentinelOne want one solution. Even if only 2% of their spend is from 5 employees in Malaysia, they don't want to deal with reconciling that spend. That's where the 100% reconciliation that Brex and Navan offer comes in. We then get all of the business because of the global nature.

Circling back, I would look at where our customers are spending globally. Is it in the UK, Brazil, or France? Then I would probably think that people in those countries may have heard of us because we service the employees of big companies there. Maybe we should think about a localized go-to-market strategy.

Could you take us five years into the future? What kind of company do you think Brex will be? What will the market see Brex as at that point?

Grow with Brex. We want Brex to be your first and last corporate card and spend management solution. Maybe you start with our all-in-one solution. As you get to enterprise scale, you say, "Okay, I want to use Navan for travel, but continue to use Brex for corporate card and spend management." So we're adaptable to your needs. We want to be your first and last corporate card.

We serve the whole range of companies. Startups and mid-market companies still make up a huge proportion of our base and we want to be able to grow successfully with companies, and the global and financial infrastructure we've built allows us to do that.

When I think about the next 5 years, the global piece becomes even more important. Right now, one of every three startups is on Brex, and we think startups will continue to be built more globally.

If we're scaling to be the holistic finance management solution for global companies, we'll inevitably have to be more local and have localized go-to-market strategies for startups and companies domiciled in those geographies, not just US-headquartered companies with a global presence.

The logical progression is US-only, then US with global presence, really nailing that and becoming a market leader, and then eventually going fully global.

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