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If anyone is interested in a bank built for startups, also worth a mention is Mercury.co. Been using them since their alpha, and I'll never use SVB or Wells Fargo or any of the traditional banks again. They have obsessively good support, do everything you need them to do without having to go into a branch, are backwards compatible for everything you need from a bank account, you basically just set it and forget it, and best of all it's completely free.

Worth disclosing if you are an advisor or investor. From your Twitter feed it look like you might be?

I’m not affiliated with either, but from the looks of it Brex has no fees for wires unlike Mercury and offers a higher APY than Mercury as well. For a startup thinking of using Brex it seems like it’d make more sense to use Brex for banking needs vs something else for simplicity.

It actually makes me wonder why Mercury chose not to do YC? I honestly think an unrecognized risk here is that if you’re a startup in the business of selling a product to other startups it seems like you have more to gain (and a lot to lose) by not going though YC since you lose out on a lot of customers that’d use you just for being in YC. Now that there’s a YC company that is competing with you as a non-YC co you will lose every time to win that business.

You’re absolutely right. I’m an investor but I’d have said exactly what I did either way. Part of my being opinionated about the subject stems from having built Founderkit, which compiled terrible reviews of SVB, batch after batch. I hated seeing YC companies join just for the brand or “network” then end up completely let down by the service.

When I switched away from conventional banks (Wells Fargo in my case), I was surprised how many edge cases there are in banking, so while I love the idea of positioning a new product as a new thing, there seem to be many features and cases when I’d simply want the best bank, period, run by a team whose livelihood depends on serving me so my team, investors, and customers are never left hanging.

On the YC point, it’s none of my business why the founders didn’t do YC again. The CEO was a partner so he very likely was given the option. Since the YC deal can vary with more experienced founders or later stage companies, it simply comes down to the deal offered to your startup. And if you have great relationships with VCs and the tech community already, perhaps it’s an option you’d forgo. And while YC companies are typically excited to try a service that came out of YC, in my experience that has to do with the continued involvement of the founder(s) with with YC (on the forum, offering deals, speaking, etc.). YC founders are smart, and they’re going to choose the best tools for their business every time. But the do YC again question is for the founders to have decided, and I’m sure they considered the option deeply. Anyway, appreciate the thoughtful reply to my comment.

The challenge for Mercury is that on the surface it doesn't appear they are competitive on rates or fees, so if you are a YC founder and even if no one there is explicitly saying that you must choose a YC-backed company over one that is not when choosing the right tools for your business, there is little other information out there that would sway you to not choose the YC one, especially one in this case that has a big head start. Choosing a tool to handle your money for you takes a lot of trust, and I think a lot of startups would look at the funding, headcount/team, and brand that Brex has built and feel like it would be the far safer option, given what's publicly known. I tried googling reviews for Mercury and the only thing I could find was the Product Hunt listing, which is at 3/5 stars.

The rate comparison is actually pretty big because Mercury is only paying the 1%-1.5% on the savings account (which is frankly an uncommon account to use/need for a business), so you'd have to deal with transferring funds between a checking and savings while adhering to the legal transfer limits, whereas with Brex it's just one interest-bearing cash account paying 1.6%.

Yeah, Mercury's going to have to up their game if they want to stay relevant. I remember my disappointment when I found out I had to park 250k in a 0-yield checking account to qualify for the 1.5% yield on a savings account that can only do something like 5 transfers a month, making it a complete non-starter for running a real business. It felt like they're playing all the same old tricks on us as the incumbent banks, just with a prettier UI.

This new Brex account with 0 fees and 1.6% yield on the entire deposit with no transaction limits feels like a breath of fresh air in comparison.

[PM on Brex Cash here]

Thanks for the response, all great questions. Answers below:

> Can you guys elaborate on this in non-marketing/PR speak? If it looks like a duck and walks like a duck…

Brex Cash functions like a checking account, but the structure behind it is different. Traditional banks separate checking and savings accounts, which means customers earn a lower yield on their money as a whole. To be able to offer yield in all of the funds, we use a different structure: customers put their cash into Brex Treasury LLC, a registered broker-dealer affiliate of Brex Inc., that invests the cash in U.S. Treasuries through a money market fund. This means that while we don’t offer FDIC insurance, funds are held in low-risk securities backed by the U.S. government.

> Do we want you to be getting around the regulations? Are those regulations in place to hurt or help us (the business owners)?

Brex Cash is regulated as a broker-dealer, by FINRA. This is a well known structure used by Fidelity and other large financial institutions to offer similar products offering higher yield cash accounts.

> I’m genuinely curious here — I am seriously excited about a real, digital-first, intelligent, non-physical business bank. But I’m immediately concerned that you’re trying to “move fast and break things” and frankly I don’t really want that when it comes to my business checking account.

Totally understand the concern, and this is top of mind for us as well. We’ve spent over a year building the right technical, regulatory, and financial foundation to make sure we can scale this product. This is a product that we have built to be resilient and not to move fast and break things -- when it comes to customer’s money, we simply don’t do that. We’ve been working with customers for months to make sure the product functions well. Lastly, we’re rolling it out slowly, starting with an early access program for existing customers. Our motto internally is: “The Brex Cash rollout should be boring” :).

Quote:

"SIPC protects cash that is deposited with a brokerage firm for one limited purpose….the purpose of purchasing securities,” says Harbeck. “Cash deposited for other reasons would not be protected. SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose."

It sounds to me like this would apply to you just as to Robin Hood's ill-fated product. Just saying "we're a broker and cash sweep into a money market fund is what brokers do" doesn't seem like a meaningful argument. Why are you different?

IANAL, but according to this: https://www.sipc.org/for-investors/what-sipc-protects

> SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm.

It sounds like SIPC protects against loss of cash for the purpose of purchasing securities _and_ the loss of the securities themselves. So in this case it sounds like by sweeping customers' cash into a money market fund, SIPC protection would apply to the money market fund investment.

I think Robinhood's issue might have been that they didn't actually do any securities trading and tried to just rely on SIPC insurance for customers' cash that's just sitting around.

Regardless of if my interpretation is correct, I'd be _really_ surprised if they just somehow ignored the whole Robinhood fiasco and managed to make the exact same mistake on the regulatory side.

That distinction doesn't make sense to me, for one simple reason. For Robinhood to promise a return of 3%, they must have been sweeping the money into some sort of investment vehicle. But the SIPC still said they weren't covered.

I wouldn't be so sure, there was the rather plausible speculation that the 3% from Robinhood was a loss leader that wasn't meant to last long, in order to drum up hype for the launch. They could very well have been planning to earn the fed rate and fronting the difference for a period of time and then bait & switching (and/or introducing some premium plan to make up the difference).

Also, money market funds, which are generally considered cash-equivalents, don't usually yield north 3% either afaik, and I can imagine putting customers deposits in riskier higher yielding investments could have also have ran foul of banking regulations.

Brex is using neither of these strategies here as far as I can tell, and they're providing a decent amount of transparency into how the funds are going to be handled, so it should be fairly easy for regulators to review. If regulators do take issue with their strategy, I suspect we'll probably hear about it in the news soon enough. In the mean time, it's still an early access product, so it's not like we can use it immediately anyways (I'll definitely be signing up though).

From the context, I can only infer that money market funds do not fall under the category of "securities" for the SIPC.

From the first sentence under the "What are securities" section:

> SIPC protects stocks, bonds, Treasury securities, certificates of deposit, mutual funds, money market mutual funds and certain other investments as "securities."

Well, I'm not going to take responsibility for reconciling the inconsistency here.

People said at the time that Robin Hood was offering a money market fund by another name, using short term investments to produce that 3%. The head of the SIPC took exception to the idea that the accounts would be covered, as I quoted. I can't say where the confusion lies.

https://www.bloomberg.com/opinion/articles/2018-12-13/robinh...

IIRC this is what Robinhood did when they tried to launch their 3% APY account. I guess where they went wrong was calling it a “checking and savings account”? I thought they also got in a bit of hot water with the SIPC because the insurance isn’t meant to insure “checking account” like products, which is essentially what this is, no?

Based on what I read, the problem was not which magic words were used, but the nature of the product.

Ok, so how is Brex different in this case? Both are effectively checking accounts, except one is for businesses and the other was for retail customers.

I don't know how Brex is different, that's pretty much the theme of my comments in this thread.

“My startup failed because our bank tried to get cute with financial regulators” doesn’t sound like a great story to tell in the future.