Successful innovations in credit are few and far between. Credit decisioning is long established; the fundamentals of lending have not changed in decades. Reserve requirements go back to the 1930’s. Yes, digitalization is shifting how we book new customers and how they interact. And, Square, which launched with a mobile device dongle now permits card acceptance anywhere, even without the dongle.
Bloomberg reports today on Brex, a small business credit card that looks like it might have some juice. The target audience is business startups that receive venture funding. Now the first thing I would recommend the startup reads is Mercator’s recent coverage of the small business card market, which indicates that there are undoubtedly profitable niches, and Brex may have found their own.
One of the objectives of this roll-out is to retain processing fees, as this article points out.
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Losing gobs of money on a quest for hyper-growth and world domination might get you funding from venture capitalists, but it won’t get you a credit card from a bank.
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Now, one startup wants to change that, and it’s convinced Silicon Valley heavyweights Peter Thiel and Max Levchin to invest in its idea.
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Rather than focus on credit history, San Francisco-based Brex Inc. looks at funding raised in order to issue cards to companies and employees to cover startup expenses.
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On Tuesday, Brex launched a credit card targeted specifically at venture-backed companies.
This will be fun to watch. In a world where burning through $30 million in venture capital is not seen as a failure, the card will need to operate in a more disciplined cash management world. As a Visa Commercial credit card, monthly payments will still be required.
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“Traditional banks issue a credit card like issuing a loan,” said Henrique Dubugras, Brex co-founder and chief executive officer. “We ingest real-time data and make a decision on the credit limit every day.”
Silicon Valley is a small incestuous place with plenty of capital, so it will not take long for Brex to know if a small business cardholder is floundering. This might not be a market that interests Citi or Chase, though top issuers might be interested as the small business card develops out of the Silicon Valley garage onto Main Street offices.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group