Global Banking for LATAM Startups

Speaker A: All right, welcome to another episode of the Headless Banking podcast. This is your host, Chris Dantuano. And today I'm happy to have Renando from Trace Finance down in Brazil. Renando, how's it going?

Speaker B: Hey, glad to be here. It's a pleasure to finally join podcast. I've been hearing a lot of the additions and it's an honor. Yeah.

Speaker A: So Bernardo and I have been talking for a few years now, I guess when I was at Currency Cloud, looking to partner up, uh, potentially there. And it's been awesome to see the growth that you guys have had know not only Brazil, but now in the US as well. And we'll tackle a lot of what you're working on and I guess these uh, sleepless nights these past couple weeks, which have led to, you know, some opportunity but you know, if we can just kick off about explaining what Trace Finance is and what brought you to found the product and program and we can kick it off from there for sure.

Speaker B: Yeah. So I'm CEO and co founder of Trace Finance. We are creating global banking solutions for high growth companies and we're starting out of Latam. So we also have built in effects to help all those high volume companies move money around other roads, which is not really simple. And I'm sure you know that very well with the experience with Currency Cloud. And it's actually a very interesting story how all the co founders got together. So all in the crypto scene.

Speaker A: Right.

Speaker B: So before I was in Decred, so at Decrid, we actually got to jump a lot of positions on CoinMarketCafe and I helped them list on OkX, Huobi, Coinbase and several other exchanges. While when I joined they only had I think two exchanges like Bitrex and Poloniex. Now they probably have more than 40. And throughout that experience I got to know how hard it was to actually buy not only Decred in Brazil, but buy other cryptocurrencies. So we actually created a brokerage in Brazil that had a partnership with a leading brokerage in uh, the US to essentially supply the Brazilian market with bitcoin in high volume. So in that year with only three people in the team, we were able to do a couple hundred million dollars of effects to buy bitcoins in the US and then sell it in Brazil. And that was really the first experience, um, the first contacts I had with high volume effects.

Speaker A: Wow. Yeah, that's a pretty good start and a lot of volume. You know, just the few of you that were going from there and talk about a little bit about the challenges, I guess, that you face to get kicked off for Trace Finance down in Brazil, obviously the regulatory piece is pretty tough, obviously. And then getting access into the banks or payment rails too, is the next step. But just that journey that you started when you started to bring it to market 100%.

Speaker B: So. So having built a cryptocurrency play from the ground with my CEO and co founder, we actually noted how bad fax markets were. Moreover, um, for companies that are doing anything, that's a little bit different than the norm. Right? So Brazil is a very commodity centric economy. So we have a lot of big exporters and importers that are exporting rice, exporting soybeans and so on. So when we actually go there and say, hey, I'm startup, I raised $40 million abroad and I want to bring this money into Brazil, all the banks will ask you over a hundred questions. They will say, oh, we can't bank you because you're not five years old. How come you have all this money and you have less than 12 months in existence or 18 months in existence, you're not profitable, and so on. So we really got to feel that in our own skin with, um, our, uh, crypto platform. But then when we had, uh, the idea of starting Trace, we knew that it wasn't just something that we could conciliate on a spreadsheet and then compensate for the lack of technology by staying up at night until like 3, 4am Right. So I actually got to meet our CTO and co founder in a Binance event in Berlin. And at the time I had never met any Brazilian that worked in crypto markets globally. But then when I was in the events, I heard two guys speaking Portuguese. And then I was super excited saying, oh, there's a Brazilian here working crypto. That's so cool. And then we got together, talked a lot. He was a, uh, lead developer in Binance, and prior to that he was second or third hire in Trust Wallet. When he joined Trust Wallet, which is a crypto mobile wallet that has over 30 million users today, they had about 100k users. So he really got to experience that growth, the acquisition by Binance and so on. And he was the perfect match for us. But then it was really hard to get him out of Binance.

Speaker A: Right.

Speaker B: Binance pays really well. It's a super exciting company. But, uh, eventually after he introduced us, uh, to 20 possible CTOs, I would always refuse them and say, hey, this guy is great, but we want you. Right? And eventually he joins the ship. And, yeah, we really share all this shared passion about helping companies move money in high volume and being able to bank high growth companies without then having to go through the whole bureaucracy, which is really involved usually in banking startups or moving money across borders. Moreover, for Brazil, which is very conservative, when you talk about effects, that's an awesome story.

Speaker A: Congratulations on the win there. That's an uphill battle and it seems like going through those challenges kind of make everything else, uh, a little bit easier. As you continue your journey on, um, can you talk a little bit about the customers and partners that you serve? Being in this industry, for sure, you know, you have partners that are customers that are competitors and all of the above. But if you could talk a little bit about, you know, the customers that you serve and also the partners that you look to network with as well.

Speaker B: 100%. So we actually, uh, started Trace with a whole different approach. But then we found a company that wanted to bring Matcha, you know, green tea from Japan into Brazil. And it's kind of like a blank street. It's a Starbucks in the US right, But in Brazil, so. So it's called the Coffee. And those guys wanted to import more, but they had gone over the limits they could import in that given year. And even though they were in court that they could do more, no banks actually wanted to do their facts for them to bring more machinery, for them to bring more green tea and so on from abroad. So, uh, we helped them. And a week later they actually came back to us and said, hey guys, you really saved us here. But, but we want to bring $5 million from a series A we raised with Monashes and shift capital into Brazil. Can you guys help with that? Do you also help bring real money into the country? And at first we were really confused because Monashis is a Brazilian fund and Coffee is a Brazilian company. So where's the fact piece there? Right? Why do we need to move USD into BRL if everything is from Brazil? But then we actually looked into it and 90% plus of the companies that do Series A and beyond in Latin America, they are not really required, but really push to create a Cayman holding structure which essentially entails them creating a, uh, Cayman Islands structure. Below it they have a US Delaware LLC and then they connect it with the Brazilian, Mexican, Colombian operational company. So then we actually help them, but. But it took about three days to onboard at the time. And me and Rafa, my CEO, I talked with him and said, hey, they're going to hate us. They are never going to recommend Us. Moreover, I think they are going to tell everybody that it took so long, we asked for so many things, but when we actually went on a call with them, they actually said, hey guys, how were you able to do this so fast, asking so little and charging so little as well. And then we were actually shocked and said, oh, hey, there's a meteor.

Speaker A: Yeah, the expectations are so low for the traditional legacy banking, you know, and so even providing not up to par services as you feel is supreme power to the actual uh, customer, which is, I guess it's good that it's creating innovation, but it's also excellent that you know, a company like that can get into your hands and then also feed you guys, you know, that next iteration of really where you're providing a lot of value which you know, obviously iterated from your first uh. Go at it.

Speaker B: Uh, yes.

Speaker A: Yeah.

Speaker B: And since then we have helped more than 200 startups move hundreds of millions of dollars into Brazil from their own money. We also help a lot of payment facilitators that are operating out of Brazil and Latin America to process payments like HBO Max, like Garena, like all the, the big guys that process payments down in Brazil. And that actually helped us actually look into our biggest motto right now, which is the global banking piece. Because by actually receiving money from all this round money in Brazil, we actually noted that there was only one bank that would bank this structure consistently and that was Silicon Valley Bank. So at the time we had customers complain to us that they had to go through more than two months from boarding an svb. They didn't yield any money there at the time. They would charge 4% FX conversion fees and by comparison we charged like 10bps. So we really noticed that there was something there to disrupt. And after a while we did raise $4.3 million seed rounds with half capital and then we had to bank with SVB because no other bank would actually accept us. And trust me, we had a crypto company I were able to bank in over 20 banks here in the country and even with the major banks here. So I really tried getting a checking account in the US for Cayman and US companies, but it's really hard for Latin American founders to be able to bank their companies. Moreover, because not only you're banking a tax, having a foreign entity in the US on the top, when you get the UBOs, the uitimate beneficiary owners, it's essentially funds which you can't really disclose the LPs for obvious reasons and the partners and co founders of the company. They don't have SSNs. Right. So you don't have Social Security numbers there. So both of the ways that usually you would verify companies and personal uh, accounts, you know, the youth made beneficiary owners of those companies, you can't really do in the traditional ways that US banks do. So that's mainly why SVB was the only one that was banking them. Of course there are more reasons but that actually enabled us to uh, work on this for more than a year now. And finally with the uh, SPB downfall we were able to launch and we can get into that a little bit later as well. But you know two very hectic wicks I would say.

Speaker A: Yeah, we'll get into that one in a second, which is a pretty loaded topic. But so to I guess to talk a little bit about the expansion of your product into the global banking. So you know we talked about before we get off so. So you have access to multiple USD accounts in the US with multiple banking partners that you're able to actually offer, you know, foreign accounts or USD accounts to you know, Brazilian companies as well, is that correct?

Speaker B: Yes. And we are able to get them a very cheap effect not only because once you expand our customer base but because we get spots and real spots by the way, because in Brazil a lot of banks they say oh we are going to give you spots but then they give you 35 basis points over spot. So we are really able to enable all this high growth companies that have a lot of other products they're interested on to have a great service. And our NPS right Now is over 94. Most of our customers actually come from recommendations from, you know, customers and since we started working with all those companies, they have never than FX with someone else since. So we are really proud of the service we built. Uh, the team is really stellar. So we got a lot of guys that have a lot of experience in global payments. Our tech team is insanely good as well. So really proud of what we built so far on the FX piece but moreover excited for what's coming in terms of integrating FX experiences globally with their banking and treasury products and really enabling high growth companies that want to expand globally to be able to do so in a seamless manner.

Speaker A: Yeah, I mean it seems like you guys are on the perfect path here. You know, starting out from an actual real life problem, iterating that product based off of the need and then also expanding that off of current customers and the stickiest leads and customers are the referral customers by far. And Obviously that's, you know, basically crossing, crossing the chasm as you will, you know, getting along those lines. So let's get into talking, you know, about the svb, you know, side of things here. So obviously, you know, everyone's aware of what happened there. You mentioned that you guys, your product came in much earlier than you expected. Therefore you ready to be able to provide, you know, support for the customers that were basically out and looking for issues. If you could talk a little bit about, I guess, news first. 24, 48 hours of your life. How did that go?

Speaker B: Yeah, so Thursday, the events, SVB going down double digits, everyone panicking, all VCs asking for their port calls to take money out of SVB that's closed very quickly and so far we only had FX product. Right? So what we did at the time was, okay, guys, you are our customers. You already know you don't even need to close the fax to send money to your account with us. But even more so we can close the fax later. Just let's get the money that's currently possibly getting stuck there to another account that's safe that we know, uh, we have control of. So by doing that, we moved more than $200 million out of SVB in the first day. And a lot of customers actually came to us saying, hey, I don't have an account with you. We have never had a relationship before, but can you open an account for me? Or actually not even open an account for me, but give me your wired details and then after that we can open an account with you guys just so I can get my money safe, right? So we actually started getting recommendations from our customers and a lot of industry relevant people like VCs, even uh, lawyers, accountants, saying, hey, help this company. We don't want their money to get stuck there. So we got approached by a lot of VCs as well that um, had money in SVB and didn't have an alternative to get money out. A lot of founders were very scared that they would get their money stuck there. And again, SVB was the only option for 90 plus percent of Latin American startups, right? So either they would send money internationally or they would actually need to wait several weeks or even months to maybe open an account with a big bank, which is usually something that's only a company that raised like 40 million plus would be able to do considering they are from Latin America. So the first thing was when I learned about it, I already put a wait list and a, uh, landing page up and then in the first day we got more than 200 leads and on the next day we started opening accounts manually for users. So we didn't even have the onboarding, uh, flow already live, but customers were sending documents to us and we were opening accounts for them for them to be able to send money. And then when they actually closed withdrawals, a lot of people that we said, hey guys, you should get your money out. We don't even need to close effects, you can create an account with someone else. After they actually called us and said, hey, can you guys help us of that? Can you guys, you know, do you have any aim into getting money out of svb? And then we're like, oh, not really, but let's try, right? So we helped users with several different patterns to get money out. So I would say that for a good few hours, if you were doing wires below 100k, you could move millions out of SVB as long as each wire was lower than 100k. And we're really helping, uh, any way we could to get that money out. Because of course now in hindsight we know that fdic, you know, covered everyone and made all the depositors whole, but you didn't have that guarantee. Right. Uh, maybe everyone would only get up to 250k covered and maybe they could get more after they liquidate assets. Right? Yeah.

Speaker A: I mean, unbelievable turn of events and obviously again, you guys are ready for it. Now in regards to, obviously some of the, uh, worry was the onboarding side of it. And I know we've talked a little bit about it, but in regards to getting customers up and running, how was that process and what was that experience like for the customers that you were bringing in comparable to where they were and what they were trying to do before?

Speaker B: It was crazy for us. I would say the, on average for the first seven days that came after the Thursday that SVB was going down 30%, I slept probably on average like two, three hours per day. So that was crazy. We went all weekend long doing like uh, a internal hackathon in a sense, just to get everything up and running, testing everything, making sure that everything's in the right place. We had already tested a lot internally with one account that we were like moving money back and forth all the time. But of course the original plan was to launch late April to be able to onboard users test them, uh, out, get some money here. Hey, don't put so much money here now. Let's just, you know, small steps, uh, but we actually had to do a real life test. I would say so after Saturday and Sunday, when we did the, uh, whole cold, uh, Sprint, we launched full automated onboarding and the full platform on Monday. So by then we started getting a lot of interest. So right now we have about $3.6 billion that, uh, companies raised on their last rounds. Of course, if we are looking at it realistically, most of them have already spent 50, 45% off their runaway. So, uh, we are more talking about probably 1.8, $1.5 billion that they still have as like bankable assets. But, you know, we got over 500 companies wanting to bank with us. And then how do you actually deal with that volume?

Speaker A: Right.

Speaker B: So even with the rough first version of the manual onboarding, it was still a lot better than what SVB had back in the days. Right. So to give you our personal experience, we were fast with SVB, it took six weeks, right. So we had five calls with them. We had to answer more than 50 questions. They asked for supplier contracts, supplier information, all for customer lists, customer contracts, a lot of things that I would even deem abusive to a certain extent. Right. And moreover, I know that was because we were a fintech company, so, uh, they probably asked less things for, you know, a healthtube company. But even with our manual onboarding, that was like first iteration. Everyone was just like throwing compliments at us, uh, saying, hey guys, how were you able to create my accounting less than one day? I took two months to do it with SVB back in the days. That's crazy. And we actually got compliments from unicorn companies saying, hey, we are switching from JP Morgan to use you guys just because you have such a great customer service. I know that I can Talk with the CEO at any time. I have your WhatsApp. You are in all the groups. I trust you guys and I know that we will have the best service possible. And we really love what you are building both on the FX side and on the banking side. So that really speaks numbers. And we are really thankful for all the trust that we received from our users.

Speaker A: That's excellent to hear and congratulations, you know, on getting there with, uh, I guess you can call it the lack of sleep, sweat and tears. But you know, really out there to help the customers and then also prove your model, as you mentioned, through, you know, live testing with real customers. And obviously the risk on that obviously is pretty high. So you have to be, you know, really mindful of that as you guys move forward. You know, and we talked about this prior to recording, but I guess, you know, you're seeing it Ah, kind of how my opinion is on it. You know, obviously bringing in a lot of customers now is, you know, is good and bringing them a home or a new home where they can trust, you know, someone like yourselves and bring it to market. We don't know where we're going and where that sticks. Where do you see, you know, the next three to six, you know, months of this to kind of do, you know, as we mentioned, more of a retro these customers and is this a long term stay and I guess what is your, what are you guys looking at in order to keep those customers, you know, instead of having that temporary place to park their assets 100%.

Speaker B: So we think that we should never, you know, put a pause on development of uh, new products and improving our products of course. So I think that we have already done more than 500 changes since we launched like 10, 15 days ago. But what I would say is people are fine to safety. Right? So we are really keeping that in mind, making sure that we have higher FDIC insurance, insurance coverage. We are getting other uh, products where they can have their assets really safe. Making sure that we have several banking partners to reduce risk and have redundancy as well. We are also looking at not adding banks that might have a bigger risk than another. So I would say that something that we talked a little bit earlier about how uh, we are really flying towards private banks versus public banks. Moreover, because I think that fluctuation in the stock market can really trigger a bank run. We have full access to the bank balance sheets. We are comfortable with uh, how healthy they look. But at the same time we know that if something happens with UBS or with another bigger bank and then someone spreads a rumor or creates a bank run with something that might not even be true, then everyone's just going to take their money out because the stock's going down 40%, 30%, 20%. Right. So I think that's really one of the main network effect triggers. So really looking at banking with private banks in the U.S. also looking at, have the highest FDIC insurance coverage possible. Also adding additional insurance on our part, paying with our own money as well. So really uh, doing everything in our power to make us uh, comparable in terms of security to JP Morgan and at the same time better as far as like the payment infrastructure and the whole like onboarding fast track and so on versus like a bigger bank.

Speaker A: And that's uh, exactly what is needed. And I know you guys are obviously moving fast and, and smart at the same time providing transparency which is in this time, what a lot of these companies need, uh, to feel safe, but also continue for them to build innovation as well, not be scared to continue to push on their side. Which worries me with this whole insecurity, uh, of the banking landscape is that you're going to get a lot of companies that are actually scared to invest in themselves again, which slows down the innovation side of it. So hopefully we can continue to tread forward and have customers like yourself being able to provide that security for companies to continue to thrive on their side. Well, Bernardo, it was a pleasure to have you on. We've been talking for quite some time and I think, uh, I love what you guys are doing and I think there's obviously a massive need for customers in Brazil to expand and bank with you, but also partners that are looking to get access to the Brazil network to, uh, expand. Obviously you guys make it much easier than trying to, uh, connect directly into a bank and that time cost is, uh, pretty absurd. So to make it easier to unlock that opportunity for other, you know, payment providers is a massive, uh, lift there too as well. So what's the best contact information for partners or customer, potential customers to get in touch with you?

Speaker B: Agreed. My email is always open. Bbace Finance. LinkedIn is also great, Bernardo, bright, but I mean, WhatsApp, for the ones that use it in Latin America, WhatsApp is the way to go for business. You can always contact me at +5.5, uh, 219-937-5880. That was a little long, but I

Speaker A: guess, you know, well, it's good because it's recorded and they can pause between each. Well, it's again, it's really good to catch up with you. I'm glad, you know, you guys are doing well. There's a lot of hard work and thoughtful work put into what you're doing and I know you're not going to stop, uh, continue to innovate. So looking forward to watching you, uh, from the side and uh, let's keep in touch.

Speaker B: Likewise. Thanks for having me.

Speaker A: Of course. Take care. Have a good day.