Alex
We thought this would be an exciting topic to discuss with you. I've got the pleasure of Michael Tannenbaum, COO of Brex. Joining me today and we're going to talk over the next 20 minutes around how to create effective and scalable back-office models and partnerships with BPO service providers like WNS that support Fintechs like BREX.
Michael
Yeah, excited to be here. Thank you so much, Alex, for having me. And thank you to Fintech Nexus for having both of us.
Alex
So, I'm going to start with a question to you, Michael. So, tell me, why do you think Fintech is a category that tends to work closely with companies like WNS?
Michael
Yeah, I think fintech right by its nature, you're dealing with, of course the intersection of finance and technology and in the finance. In particular, you're going to have a lot of regulation, right? It's a regulated industry and it's where that just naturally demands more operational intensity because you have KYC compliance requirements. You have often underwriting money movement and so things that. Just require more people and are more operational, right? There's the technology side of like a software and typically that operations for a software company just means like customer support. It doesn't have all people that are, you know, doing these functions, but on the financial side of things, you have these more operationally intensive Tasks that are required to deliver a unit of revenue, and so because of that, I think as that scales, you see Fintechs often looking to partner with folks like yourself to outsource and you know improve these processes.
Alex
As a follow-up question, from your perspective and your experience, when is the right time for a Fintech to engage with the partner, like WNS, provide business process management, analytics services, and etcetera?
Michael
Yeah, I think the way that I've always thought about these things is there is at least in my experience at both Brex and Sofi, there is a life cycle for operations. In the beginning you typically and this is also a little bit different with remote work. But at least you know prior to that and. We can talk about. How that influences things, but normally when you're just starting out as a company, as a young fintech, you want to have everything in house. You want to really triage the bugs. You want to figure out you want to hear what the people that are doing the processes are saying and that informs your product road map that informs your strategy that informs the decisions that you make very closely. And so, at that point, everything sort of in house, everything's typically, you know, wherever you start. And obviously if you're a remote company. Still, you know, maybe the person's not in the office, but that's an in-house staff and I think companies start to think about, you know, needing outsourcing and more scale as processes become more repeatable and you're at this point like just looking for scalability because things are growing and you're not changing that process or personnel or the way you do things or the technology that the people use materially. Each quarter, say and at that. Point you know which you could say, maybe at the point where you have, in my experience, it's been like 20 to 25 people doing the same thing. That would be around the time. I'd start to think, of course, there's a lot that goes into contracting in this way, right? There's all the customer data and tooling and just making sure you have kind of the. Environment internally to support something like this, so that's been generally my experience, but I be curious from you to hear like you know when in the life cycle do you do you guys typically engage for most of your customers? I just gave my personal opinion.
Alex
Yeah, it's interesting the way. That you discuss how you're looking for feedback directly from the associates and people as you're scaling up, we've seen a big inflection point. As a result of COVID and it's really two things. One of them is. There's a greater amount of expertise that we're able to garner together, right? And once you get that critical mass and you already have a feeling and a view of where you're going to scale, you can see a trend line of your growth of your product portfolio and then you recognize the need right for additional scalability as well as better engineering. So, when we? End up seeing. A few points. One of them is when organizations realize, look, we want to continue to focus heavily on growing our top line, growing our business and then improving the quality of our experience. We see that as a point where Fintechs and even regional banks and super regionals, etcetera, say you know what, I probably want a better shop in the background, right? I want better structure. I want also a view on how I can reduce cost as a balancer but it's not really always about that. A lot of it has to do with the quality of the customer experience. The effectiveness and kind of see how you can infuse digitization in the. So, all those things right end up seeing you end up seeing that trend line and that view from an office like yours right in your position like yours a CEO saying, yes, you know there's an opportunity to do more to do better and then to support our business more effectively and really those become the inflection point. So, it's really it depends on the situation, but it really has to do with once a fintech recognizes that need for that scalability and that engineering that. They want to turn maybe to an expert to help them make that decision and affect that talent.
Michael
Yeah, that makes sense. I think the other thing to think about is, of course, customer demands, whether that's the internal customer or it's your actual customer that you're interfacing with. I think one of the benefits that we've seen, you know, working with Folks like yourself is you kind of have followed the sun model so that can be, you know, as basic as. You have customers in multiple time zones like for Brex, right? We people have fraud issues, they have transaction issues, they have problems. And when you have a problem on your credit card, it might not just be between 9:00 to 5:00 or even 5 to 5. You know, 5:00 AM to 5:00 AM Pacific, 5:00 PM Pacific, which would be common hours. You know, you might have a problem on the weekend. You might have a problem at 1:00 am. And so, I think that's. Just it starts. To become a challenge as a smaller fintechs, or even as a mid-sized fintechs to staff that way. And then you always got to have backups, right? And so, as you start to get into these problems, it's quite natural. And that's for your own customers. But then there's also internal customers, right? So, I think accounting is a good example of. You know if you want to just be on top of things at all times. You it is helpful to have staff that's working overnight on different hours, right? And then things are done in the morning and so that's a common a common need as well. That's maybe not as intuitive.
Alex
And, I think it is a good point really a lot of it has to do with consistency too and quality of experience, right, and not to have variability across associates to have someone who. Going to expertly managed train and get the right talent as well as help think through the future state model in terms of how do I help digitize this right in partnership with your business and it's a big part of going back to what some of the Fintechs end up looking for from us. It's giving them that also that balance between digitization and human based talent.
Michael
Right, right. That makes sense.
Alex
So just to that point, right, so what are your expectations from your vendor partners to help you, what expectations you have for your vendor partners to help you compete effectively as you grow and scale as Brex is doing now?
Michael
Yeah, I think there's sort of the, the, the. The things you'd. Expect around consistency and quality right. Ideally, when you're when you're working with a vendor partner in this nature, you want to feel as though the that partner and your own internal staff are interchangeable. And ideally perhaps. Superior and I think in the Fintech space specifically because we're at Fintech Nexus, although it's hard to really see where we are given these lights and I can't see much, but I assume we're still a Fintech Nexus, good and.
Alex
Yes, we are, it is not a Metaverse somewhere.
Michael
Yes, and it seems like we might. Be in like almost. But if this is heaven, I'm not sure. So anyway, I think when you're fintech specifically, you also care about regulatory compliance, right? The reality is, is either you're the you're direct regulators. Or the of the folks that regulate your Partners that you use. They are going to have certain requirements that things are done the correct way according to policy procedure. That's very important. And so, it's really important that you work with somebody who understands that, right? Right. This is not just playing around. And so, it's very important that if you say we're going to cut like the people that are working on your processes, let's take KYC and onboarding common problem across fintech. If you're collecting 4 pieces of CIP right customer information, you, we you hope that your BPM partner understands that that's critical and people are aware of what they're doing.
Alex
Yeah, I think that that understanding that complexity and I think it's a big part of what we end up focusing on is continuing to see where the puck is going to be, not where it is right from our as does you know, as is your business and everyone else, right? The idea is there for us to try and create Talent solutions, scalability, availability. Right to meet those expected demands. Right. So, when you think about right, you know, a lot of expected impending regulation that's going to come out from all the implosions. When you think about FTX or SVB or, you know, signature, right, all those right what we've. Really been focusing on is how do we do more? How do we prepare for what we see coming down the road? And we've already seen some signals and demand as a function of that on both the commercial lending space and KYC, AML, no question about it.
Michael
And are you? Seeing from your perspective though, because of all the Increase You know, you talk about the blow ups, right? You have the Yes banks, signature, SVB, silver gate and then 2F's first Republican FTX. Luckily, Brex begins with B. But when you're see are you seeing sort of increase or changes in clients demand because of?
Alex
The letters that way, right? We are like, as I mentioned, right, definitely in how do we address risk most effectively really a lot more need to look at greater scrutiny from a commercial underwriting perspective, definitely from risk operations, everything there's a lot more that we've been asked to do even over the last few months with existing clients. And new clients really around the Fin crime space, whether it's transaction monitoring, KYC, AML, sanction screening, etcetera just because. Of those implosions, right? Just looking at the entire portfolio and the risk that these fintechs or banks want to take on and really understanding more of are they, how exposed are they and how exposed they want to be. They certainly want to look at their existing portfolio, but also going forward they have to continue to grow and scale. So, they've been looking to us to see where else we can. Help with that need for talent and that availability, but it brings me to a good question, right in terms of scaling with the with the recent collapse of SVB and the billions Rex received in deposits, what did Rex do to rapidly address the new Customer scale?
Michael
Yeah, I think we did a lot of things and I think this is a good example of where have you know, this is where you want to have this business continuity. You want to have relationships, you know, like the one we have with WNS, because right as SVB, you know, started to unfold. It became very clear. Probably as early as that Wednesday, at least at Brex. You know that things were different, a lot of volume coming in, a lot of people opening up new accounts, a lot of nervousness in the market. And so, we had to scale up, you know, rapidly right. We don't normally have activities like that or that kind of volume. And so being prepared and having the operating procedures having the relationship having. And you know, the ability to flex with someone like yourself who can help add resourcing, not just on customer support but also on all the areas that we talked about, operational money movement, you know compliance and KYC. And so having that ability to do was super important. So, we really focused first on, you know, meeting the immediate needs of customers. Onboarding new customers that we're looking for a new account. You know, at that time it was not clear, especially on that Friday, whether people were going to have access to their money. So, everybody was rushing to open new accounts and try and move their money. And then we, you know, we also focused on getting out emergency payroll loans to our customers because. There was a strong sense, at least over the weekend, that people were not going to be able to access their accounts to make payroll. And so, we were thinking, OK, well. That we make loans to people to do that, and of course, you know, we don't typically create a new loan product over the weekend, come up with underwriting, come up with onboarding and review and all that. And so again, that's where you need to have these kinds of resources. And when you're thinking about continuity and Emergency Management. This is, you know, these are precisely the situations that you think about.
Alex
Apart from events like that that that you mentioned, they were talking about SVB, just considering that you know we talked about all the other the banks that have been impacted and the whole changing of environment, how is that potentially changed your perspective on operations as your role as a COO?
Michael
Yeah, I think so. I've always since I've been. In charge of operations at Brex, I have focused on a few areas. One of which? Has always been like maintaining what I call our risk management brand, meaning like ultimately when people are trusting you with your money. Your risk management brand is kind of is very important, right? That's it's very different. If you're as a fintech, right? Again, Fintech Nexus, right? We're here because we're actually are asking people to trust us with their money. I sometimes when I see Fintech early stage fintech websites and they have like, oh, this is our company dog, you know on the website. We all call each other, you know, pet names are up. I'm like it's fine. But I think just remember, you're asking me to trust you with your money, right? So, I think with Brex it was that paid off, right? These things pay off over time. So, it's actually quite natural that when SVB went down, people would be like. Well, I'm looking for like JP Morgan and of course, many people were right. But at the same time, some people were looking for Brex because Fintechs have to compete on both, right? We, you know, part of the company dog and sort of that thing is that you can compete on tech and speed. And so, you want to, you want to balance tech and speed with trust and security and safety. And I think that. You know, if Brex didn't have that, if we had been, you know, leaned into a different brand that wasn't associated with risk management. I don't think you know billions of dollars would have flown to it, would it would have fled to us. I think they would have said, well, I'm nervous and Brex seems like it's the next thing to go down. So, I don't want to go there and I think that, you know, that speaks to the investments that. We make long term and you never know with crises, or with anything with operations, right, you're you don't, really. You're prepare you; you prepare your whole life for those moments. That's what makes the careers right. And so, you don't really know until they come.
Alex
So, we are running one on time. We have about 3 minutes. Just want to know if there is questions from the audience that we can answer.
Question 1: I think the question. Yeah, I'll repeat the question, the questions about why are card and which was the German payments processor that a lot of Fintechs use.
Michael
I think the question. Yeah, I'll repeat the question, the questions about why are card and which was the German payments processor that a lot of Fintechs use. Look, I think it speaks to issues of redundancy, right when you're building your fintechs, you never want to be reliant on one partner. And the reality is, you know, from this perspective, much to Alex's chagrin, you know, we have multiple partners, right. And that that's. The that's always been a strategy. Of course, you have to balance this when you're a six-person company, right? You can't have. And everything, everything with risk management is balancing. You know when do you have something to gain versus something to protect and that changes as your company gets bigger. But I think that speaks to an example. Of look, people that had their entire operations on SVB, there was a time when Brex was entirely on SVB and it would have been a very different weekend had that been the case. But we didn't, right? We had backups and different things and I think that's with wire card. Of course, you know you want to be thoughtful about the vendors that you pick early on. And I think at the same time. And you know, it's kind of like you don't want to use fintech for everything, and you don't want to use non fintech for everything because fintech can be bought and can fail and non-fintech to the point back. There can be super difficult, so you gotta always be thinking about these things.
Alex
I think from a service provider perspective, right, again we have a diverse portfolio. Banking is not the only industry we support. We support insurance, which is a big industry for us, travel, healthcare, manufacturing, right, a number of hospitality. And for us there's diversification there too from vendor side which only helps support then two, right. Situations or customers like Brett so that we're not single threaded either, right. And we have diversification not just across the single services and industry. There's multiple service industry as well as multiple industries and multiple functions that we provide service for. So, I think in that way, right, we've also provided that hedge risk.
Question 2:
Final question is we, we've and we heard about it earlier in the day as well. What's happening in terms of funding and funding it, sort of the latest stages as well as the early stages? Is the current tightening in terms of the funding impacting service model growth or expansion? Or, you know, making sure everything is what you want it to be, and if so, can people ride this out until the money comes back into the system?
Michael
Probably good question for you. I would think in terms of, I mean my guess would be look, I'll be honest about Brex, right, as the market has gotten tougher, we've absolutely looked to see. There are areas that we can cut costs and it would be very natural to look at BPM partners that the reality is. Cost savings is a huge part of it
Alex
Yeah, I mean, from the way we look at that too, it actually has it's made us, it's made us look at risk as well, more so on from a customer perspective. Obviously, we're always doing our due diligence contractually, we're affecting that, right, so that there's, you know, I mean there is mutual risk satisfied, right most. You know those relationships are both risk averse, but at the same way, we're also quite cautious where we're looking at where the funding is coming from entities that have not gone public as well. And we want to make sure that there is going to be continuity there because I mean we have an obligation as well for our people and not just for the service we provide, but also, we're providing careers for people. So, the reason we can bring expertise to the table is because people. Are with us for 10/15/20 years and have built up a career. That's the expertise that we end up bringing to the table so we don't operate as you know a staff augmentation shop for that reason. So, in that way, we're looking to see also, right what's what do we see as a going, are there going concern issues? Do we see that there's going to be longevity here and how comfortable we are and we look at that. From a risk perspective, as well as infosec. It's a great question.
Michael
No, I mean, I think the other just in terms of the funding environment, I think that you are. You're going to see increased needs for outsourcing and things like that, but at the same time, you know the advice that I give to companies and that we practice at practice like you can't cut your way out of you know, a mark, a bad market. You can't cut your way to profitability. I mean, you can if you're, but it's pretty unusual, I think in this market and you know the market, the reason why you come to a conference like this that you start a Fintech is not to cut your way to profitability. It's generally to grow so. I think you go to balance those two things and
Alex
as I'm mentioning before, right on the flip side of that, when? You look at when you look at companies that are, you know that are have their series B or series C funding as well, right, their investors, their private equities that are you know fund that are funding them. They're also looking to make sure that whatever we were looking at within their portfolio, they're getting greater scrutiny. So I mentioned before right around our say commercial underwriting or the greater need and demand. For risk OPS and KYC, AML that that has grown significantly over the last, I'd say six months and it will continue to grow right as we have this for the regulation that we expect to see right across the entire market whether it's crypto or Fintech overall.
Additional comments:
Yep, would do in my opinion. I think sometimes too diligence has been. A little bit late. No, thank you both very. Much and they will last.
Alex and Michael
Thank you so much.