Capital One’s Brex Bargain: Now Comes the Hard Part

Late yesterday Capital One announced that it had acquired the commercial payments and expense management fintech Brex for $5.15 billion, half in cash and half in stock. Analysts have been noting that the price is a sharp discount from Brex’s peak valuation of roughly $12 billion, suggesting this may be reflect the broader reset in fintech valuations since 2021, but also Brex’s recent slower growth.

For some historical perspective, Capital One has made tremendous strides since launching its commercial card business in the 2000s, chiefly by leveraging its risk management and data wrangling abilities to replicate large market program economics for a portfolio understood to be mostly mid-market customers.

Launched in 2018, Brex’s commercial card portfolio seems to have scaled as fast or faster than Capital One’s, relying in large part on the same tactic of taking enterprise program offers downmarket, but with a lure of enterprise-grade expense management and controls, as well as a digital first approach. This acquisition, along with the acquisition of the Discover network, presents tremendous opportunities for Capital One in the commercial payments space.

The World’s Your Oyster, If You’ll Have It

With the Brex acquisition, Capital One seems to have all the ingredients for a scaled working-capital machine: a longstanding institutional focus on industry leading underwriting, a network where they can shape both authorization and settlement economics, and now a platform with state-of-the-art spend controls and workflows, built to draw in customers focused on leading edge tech. The three parts, properly integrated, offer the potential for a uniquely differentiated platform for commercial cards and broader commercial payments.

One hopes that Capital One sees the potential synergies in these two acquisitions, because they will need to be clear-eyed about the integration lift required to capture it.

Taking on Brex while still onboarding Discover raises the risk of slower decisions, duplicated work, and blurred ownership. The ingredients are there, but realizing the full working-capital machine will take substantial execution.

Discover has historically been oriented toward retail, suggesting less expertise in commercial working-capital product development, specifically the expertise required shape a strategy to leverage its retail focused network and sales arm into something fit-to-purpose for conversations with B2B payees.

Now for the Assembly

Brex’s success is largely a product of its fintech talent and operating pace. Acquisitions often see key individuals cash out, and while the principals at Brex have committed to stay, the risk is always that talented team members accustomed to fintech environments may be less inclined to want to work for a bank. A potential mitigating factor is that Capital One is not a conventional bank: it has a long track record of behaving like a disruptor, with a product and data-led operating model and a talent base that often seems equal parts fintech and banking.

So Brex brings state-of-the-art platforms and a substantial installed base, Discover brings the opportunity to manage network pricing across buyers and sellers, and Capital One brings leading underwriting expertise and scale.

A powerful combination of factors to be sure, but as with most acquisitions like these, success will be determined less by the pieces than by how quickly and cleanly they are assembled.