Alex
We thought this would be an exciting topic to discuss with you. I've had the pleasure of hosting Michael Tannenbaum, COO of Brex, today, and we're going to talk over the next 20 minutes about 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 for you, Michael. Tell me, why do you think Fintech is a category that tends to work closely with companies like WNS?
Michael
Yeah, I think fintech, by its nature, deals with the intersection of finance and technology, and especially in finance, there's a lot of regulation. It's a regulated industry, which naturally demands more operational intensity. You have KYC compliance requirements, underwriting, money movement, and other tasks that require more manpower and are operationally intensive. On the technology side, for a software company, operations might mean customer support, but in finance, it involves more operationally intensive tasks required to generate revenue. That's why Fintechs often seek partnerships with companies like WNS to outsource and improve these processes.
Alex
As a follow-up question, from your perspective and experience, when is the right time for a Fintech to engage with a partner like WNS to provide business process management, analytics services, etc.?
Michael
Yeah, I think the way I've always approached this is that in my experience at both Brex and Sofi, there's a clear life cycle for operations. In the beginning, it's typically—though this has changed somewhat with the advent of remote work—when you're just starting out as a company, especially as a young fintech, you aim to keep everything in-house. You want to dive into the details, troubleshoot issues, and closely listen to the feedback from those involved in the processes. This input informs your product roadmap, shapes your strategy, and guides the decisions you make. So, during this initial stage, everything tends to be handled internally. Even if you're a remote company, the staff working on the processes is essentially your in-house team.
As your company grows, and processes become more standardized and repeatable, you naturally begin to consider outsourcing and scaling. At this point, you're primarily seeking scalability because things are expanding, and you're not making significant changes to the process, personnel, or the technology being used every quarter. In my experience, this typically occurs when you have around 20 to 25 individuals performing the same tasks. That's usually when you start thinking about outsourcing. Of course, this process involves numerous factors, such as handling customer data, tooling, and ensuring your internal environment is equipped to support such a transition.
That's generally been my experience, but I'm also curious to hear your perspective. At what point in the life cycle do you typically engage with most of your customers? I just shared my personal viewpoint.
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 gather together. Once you reach 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. Then you recognize the need 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 improving the quality of our experience." We see that as a point where Fintechs, regional banks, and super regionals say, "You know what, I probably want a better structure in the background. I want better structure. I also want a view on how I can reduce costs as a balancer. But it's not always about that. A lot of it has to do with the quality of the customer experience, the effectiveness, and how you can infuse digitization into it." So, all these things end up being seen as inflection points. It really depends on the situation, but it really has to do with once a fintech recognizes the need for scalability and engineering, they want to turn maybe to an expert to help them make that decision and find 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 a "follow the sun" model, so that can be as basic as having customers in multiple time zones. For Brex, people have fraud issues, transaction issues, and problems. When you have a problem on your credit card, it might not just be between 9:00 to 5:00 or even 5:00 AM to 5:00 PM Pacific, which would be common hours. You might have a problem on the weekend. You might have a problem at 1:00 am. So, I think that's where it starts to become a challenge for smaller fintechs or even as mid-sized fintechs to staff that way. And then you always have to have backups, right? As you start to get into these problems, it's quite natural. That's for your own customers. But then there are also internal customers. Accounting is a good example. If you want to be on top of things at all times, it is helpful to have staff that's working overnight on different hours. And then things are done in the morning. So, that's a common need as well. That's maybe not as intuitive.
Alex
And, I think it is a good point. A lot of it has to do with consistency too and the quality of experience. To have someone who is going to expertly manage, 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. It's a big part of what some of the Fintechs end up looking for from us. It's giving them that balance between digitization and human-based talent.
Michael
Right, right. That makes sense.
Alex
So just to that point, right, what are your expectations from your vendor partners to help you? What expectations do 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 the things you'd expect around consistency and quality. Ideally, when you're working with a vendor partner in this nature, you want to feel as though that partner and your own internal staff are interchangeable and ideally perhaps superior. In the Fintech space specifically, because we're at Fintech Nexus, it's hard to see where we are given these lights. I can't see much, but I assume we're still at Fintech Nexus. Good and, yes, it is not a Metaverse somewhere. Yes, it seems like we might be in heaven, but I'm not sure. So anyway, I think when you're fintech specifically, you also care about regulatory compliance, right? Either your direct regulators or the folks that regulate your partners that you use are going to have certain requirements that things are done the correct way according to policy and procedure. That's very important. So, it's really important that you work with somebody who understands that. This is not just playing around, and it's very important that if you say we're going to cut the people that are working on your processes, let's take KYC and onboarding, a common problem across fintech. If you're collecting four pieces of CIP, customer information, we hope that your BPM partner understands that it'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, due to all the recent increases, you know, you talked about the blow-ups, right? You have Yes Bank, Signature, SVB, Silvergate, and then 2F's, First Republic, FTX. Luckily, Brex begins with a B. But are you seeing any increases or changes in clients' demand because of this?
Alex
The letters, in that way, right? We are, as I mentioned, definitely addressing risk more effectively, and there's a lot more need for greater scrutiny from a commercial underwriting perspective, especially in risk operations. Over the last few months, we've been asked to do a lot more by both existing and new clients in the financial crime space. This includes transaction monitoring, KYC, AML, sanction screening, etcetera, all because of those implosions, right? We've been looking at the entire portfolio and the risks that fintechs or banks want to take on, trying to understand how exposed they are and how exposed they want to be. They are certainly examining their existing portfolio, but as they continue to grow and scale, they've been looking to us to see where else we can help with the need for talent and availability. This brings me to a critical question: In terms of scaling, with the recent collapse of SVB and the billions Brex received in deposits, what did Brex do to rapidly address the new customer scale?
Michael
Yeah, I think we did a lot of things. This is a good example of where having business continuity and having relationships with partners like WNS is so important. As SVB started to have issues, it became clear, probably as early as that Wednesday, at least at Brex, that things were different. There was a lot of volume coming in, a lot of people opening up new accounts, a lot of nervousness in the market. So, we had to scale up rapidly. We don't normally have activities like that or that kind of volume. Being prepared and having the operating procedures, the relationship, and the ability to flex with a partner like yourself who can help add resources, not just on customer support but also in all the areas that we talked about, operational money movement, compliance, and KYC. Having that ability was super important. We really focused first on meeting the immediate needs of customers, onboarding new customers who were looking for a new account. 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 to move their money. 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. So, we were thinking, "Can we make loans to people to do that?" Of course, we don't typically create a new loan product over the weekend, come up with underwriting, onboarding, and review, but that's where you need to have these kinds of resources. When you're thinking about continuity and emergency management, these are the situations that you think about.
Alex
Apart from events like that, how has it potentially changed your perspective on operations in your role as a COO?
Michael
I think so. I've always focused on maintaining what I call our risk management brand, especially since I've been in charge of operations at Brex. When people are trusting you with their money, your risk management brand is very important. It's very different as a fintech because we're asking people to trust us with their money. I sometimes see early-stage fintech websites, and they have the company dog on the website. We all call each other pet names, but I think it's fine. But just remember, you're asking people to trust you with their money. With Brex, that paid off. These things pay off over time. It's quite natural that when SVB went down, people were looking for Brex because fintechs have to compete on both tech and speed. So, you want to balance tech and speed with trust and security. If Brex didn't have that brand associated with risk management, billions of dollars might not have flown to us. I think it speaks to the investments we make long-term. You never know when crises will come, but you prepare your whole life for those moments.
Alex
We are running short on time, with about 3 minutes left. Is there a question from the audience that we can answer?
Question 1: The first question is about Wirecard, the German payments processor that many fintechs used.
Michael
I think the question, yeah, I'll repeat it. The question is about Wirecard, the German payments processor that many fintechs used. Look, I think it speaks to issues of redundancy. When you're building your fintech company, you never want to rely on just one partner. The reality is, from this perspective, much to Alex's chagrin, we have multiple partners. That's always been our strategy. Of course, you have to balance this when you're a small company with only six employees. You can't have everything. Risk management is all about finding the right balance, knowing when to prioritize gain and when to prioritize protection. This balance shifts as your company grows. The Wirecard example highlights why it's crucial. For instance, people who had all their operations dependent on SVB faced a very different situation. Brex was entirely on SVB at one point, but we had backups and other solutions in place. When it comes to choosing vendors early on, you want to be thoughtful. It's like a delicate dance between fintech and non-fintech solutions because both have their strengths and weaknesses. Fintech can be acquired and can also fail, while non-fintech solutions can be challenging to work with. So, you always have to be mindful and think ahead.
Alex
From a service provider's perspective, we have a diverse portfolio. Banking isn't the only industry we serve. We also support insurance, which is a significant part of our business. Additionally, we work with clients in the travel, healthcare, manufacturing, and hospitality sectors, among others. Our diversification extends to our vendor relationships, which helps us support clients like Brex effectively. We're not overly reliant on a single service or industry. We offer services across various industries and functions, creating a safety net against potential risks.
Question 2: The final question pertains to the current state of funding in both early and later stages of businesses. The question considers whether the tightening of funding is affecting the growth and expansion of service models. Furthermore, it asks if businesses can endure these challenges until the funding landscape improves.
Michael
I think this is probably a good question for you, considering your expertise in the industry. If I were to speculate, I'd say that in light of the increasingly challenging market conditions, Brex has been actively exploring opportunities to reduce costs. It's quite plausible that we've examined our BPM partnerships as well. The fact remains that cost savings are a significant factor in our decision-making process.
Alex
Yeah, I mean, from the way we look at that, it has made us examine risk more closely, particularly from a customer's perspective. Obviously, we always conduct our contractual due diligence, and that's something we're quite cautious about. So, there's mutual risk involved in most relationships. These relationships tend to be risk-averse, and we also exercise caution when evaluating the funding sources from non-public entities. We want to ensure continuity because we have an obligation not only to provide services but also to support people's careers. Our expertise comes from having employees with us for 10, 15, or even 20 years, building their careers. This is the expertise we bring to the table, so we don't operate solely as a staff augmentation service. Therefore, we're also evaluating the ongoing viability and addressing potential concerns. It's an excellent question, and we consider it from both a risk and infosec perspective.
Michael
No, I mean, I think, in terms of the funding environment, you are going to see increased needs for outsourcing and similar approaches. But at the same time, the advice that I give to companies, and what we practice at a place like ours, is that you can't cut your way out of a tough market. You can't cut your way to profitability. While it's possible in some cases, it's rather uncommon in the current market. The primary reason you attend conferences like this or establish a Fintech isn't to achieve profitability solely through cost-cutting. It's typically about growth. Therefore, you need to strike a balance between these two aspects.
Alex
As I mentioned before, on the flip side of that, when you consider companies in their Series B or Series C funding stages, their investors, mainly private equities that fund them, are also increasing scrutiny on what we've been assessing within their portfolio. As I mentioned earlier, concerning aspects such as commercial underwriting, there is a greater need and demand for risk operations (OPS) and KYC (Know Your Customer), AML (Anti-Money Laundering) procedures. This demand has grown significantly over the last, I'd say, six months and is expected to continue its growth due to the anticipated regulations across the entire market, whether in crypto or the Fintech sector as a whole.
Questioner
Thank you both very much.
Alex and Michael
Thank you so much.