Brex gets an EU payments license | PaymentsSource

After Brex spent much of the past year expanding its technology to reach clients that want to expand globally, the company hopes that it has checked a key legal box.

Brex has received a payment institution license in the European Union, authorizing it to issue commercial credit cards and originate payments, including direct debits and credit transfers, to EU-based companies that do not have a U.S. location.

This will enable Brex to compete with banks and other fintechs in the battle to provide embedded payments, or the ability to offer payments within a client’s nonpayment app. A growing number of banks and fintechs are using embedded payments and finance to expand the relationships with corporate and consumer customers. 

“We want companies to have more access to our systems, especially now that we are partnering with embedded finance partners,” Erica Dorfman, executive vice president of global financial products at Brex, told American Banker.

What Brex gets

The competition among companies that want to provide embedded payments centers on easy onboarding, since the company that enrolls the client controls all the data and is in the key position to benefit from third-party partnerships. Brex’s network covers more than 200 countries and 60 currencies. But Brex’s license only allowed it to sell to companies with a U.S. location.

The EU license enables Brex to offer U.S.-based payments to EU companies without those companies having to set up a U.S. office. “We hear a lot from companies that want to sell in the U.S.,” Dorfman said, adding that Brex hopes to secure similar licenses in the U.K. and other countries.

About 60% of Brex’s clients operate in more than one country, and the license will help it gain more of those clients’ payment relationships. Brex can also use the EU license to offer other products beyond payment processing without involving third parties such as financial institutions, correspondent banks or other local partners.

Brex’s recently added products include tools for startups, including accounts that Brex acquired from the failed Silicon Valley Bank. Through a partnership with Stripe, Brex lets firms apply for Brex business accounts immediately after incorporation. This speeds onboarding, making it easier for Brex to issue other financial products or to connect clients to third parties.

Brex has also developed a generative AI tool that automates different parts of payment processing, joining similar AI systems from Visa, Mastercard and others. Through a recent partnership with Navan, a travel, corporate card and expense management solution, Brex has enhanced its ability to offer embedded payments by linking processing to travel and corporate spending.

The solution, called BrexPay for Navan, allows Navan’s clients to issue virtual Brex-issued corporate travel cards that integrate with Navan’s travel management platform. “A lot of EU companies are going to want to do this in the U.S.,” said Dorfman, adding that these new technology tools and EU licenses give Brex a broader treasury management framework beyond acting as a pipe to send and receive payments. Brex, which has opened an office in Amsterdam, will start onboarding EU-based clients in the coming months.

License to sell

While European countries have different payment regulations, having an EU license enables “passporting” or using an EU license in different countries, Gareth Lodge, a senior analyst at Celent, told American Banker.

“It costs time and effort to get those licences, and maintain them, so while there are benefits, equally there is a cost. Within Europe though, there are some countries where it is easier to get a licence, so there is a degree of regulatory arbitrage. It’s noticeable that there is a concentration of licences in a small number of countries,” Lodge said. Brex has plenty of competitors in offering embedded payments.

Gartner’s “hype cycle” for payments technology, which includes topics like generative artificial intelligence, blockchain and faster payments, pegs embedded finance as being the “early mainstream” portion of its adoption curve, with CurrencyCloud, Stripe, Visa, Mastercard and Wise active in the market. For payment companies, building an embedded payment product can offer an advantage in forging partnerships with financial institutions and other payment firms.

“Cross-border applications such as CurrencyCloud and Wise provide the ability to embed cross-border payments into digital journeys,” Gartner’s analysts wrote. Even if cross-border payments fully mature, there will still be challenges in building regulatory support in multiple countries, according to Lodge. “Will we ever get a global licence? Not in my working lifetime,” he said. “Even the need for one is likely hotly disputed, not least because of the local nuances of what each type of organisation should or could do, and the perception of the role of regulation.”