Why We Invested in Braid

Reach out to Brett Calhoun, General Partner at Redbud VC, at brett@redbud.vc to learn about Redbud, and subscribe to our newsletter here. 

Braid is an API platform that enables financial institutions to launch or plug into fintechs for new revenue opportunities. Braid is building the new core banking infrastructure that brings the payments infrastructure in-house, replacing the need for the existing middleman (i.e., BaaS providers)

Amidst a landscape fraught with challenges, middle-market financial institutions (FI) (e.g., banks and credit unions) are struggling to grow. In the United States, there is $121T in annual payment flow, yet only 10% of the nation's 4,000+ community banks are effectively tapping into these payments.  For example, in 2003, banks with less than $10B in assets (which represented 98.8% of the U.S. banking market) controlled roughly 38% of all aggregate deposits. Fast forward to 2023, these banks still represented 96.6% of the market, but their aggregate share of deposits had fallen to 17%. Consolidation pressures and heightened competition compound the community bank’s struggles, driving customers to withdraw deposits in favor of larger institutions. In 2023 alone, 50% of new deposits flowed towards digital banks. In an effort to adopt new technologies, many FI executives turn to Banking as a Service (BaaS) - in which banks partner with fintech firms to offer banking services outside the realm of traditional bank branches or tailored to specific customers. Despite the potential benefits of BaaS partnerships, many executives at banks lack sufficient understanding of BaaS and other technological opportunities to grow deposits and collaborate with fintechs effectively.The regulatory landscape surrounding BaaS has grown increasingly stringent, resulting in significant risks and financial penalties for banks involved with BaaS providers. In 2023, BaaS banks were responsible for 13.5% of severe enforcement actions by federal bank regulators, with notable crackdowns leading to consent agreements and hefty fines for banks. The BaaS providers have had their fair share of recent turmoil. Solid recently settled a suit with Series B investor FTV and bought back shares at a 56% discount. Synapse filed for Chapter 11 bankruptcy just this month. The growth in the number of BaaS providers has slowed, but the regulatory turmoil has produced learning opportunities for new and future BaaS-type technologies.

Traditionally, BaaS providers simplify the integration of traditional banking services, like deposit accounts, cards, and loans, into the software of any business, from fintech startups to established platforms. These providers typically collaborate with banks to deliver the necessary services, enabling platforms to utilize BaaS APIs. This integration allows customers to perform various financial tasks, such as holding funds, paying bills, managing cash flow, and accessing funding directly through the familiar platform they trust. While BaaS solutions benefit both banks and fintechs, they often cannibalize themselves. Because of the BaaS provider's offerings, banks eventually scale to a point where they outgrow their reliance on BaaS providers as they expand.In contrast, Braid offers a solution that empowers banks to foster internal growth rather than relying solely on external BaaS providers. By facilitating direct collaboration between financial institutions, fintechs, and developers, Braid enables banks to bring payment infrastructure in-house. Essentially, Braid empowers financial institutions to cultivate new deposit and fee income sources from an expanded customer base. Braid's direct connection to the US Federal Reserve facilitates a streamlined implementation process for banks, giving them greater control over payment data and incentivizing them to develop internally. 

We first spoke with Braid’s founders, Randy San Nicolas, and Jake Zhu, in July 2023. At the time, the company was called Ropechain, and the team was looking to build a product for community banks to grow. Since June, Randy and Jake have been relentless in their efforts. They secured a small amount of angel funding that stopped the company from failing twice. Their shoestring budget forced the team to be scrappy and meticulously refine their product offerings to avoid the conventional BaaS model. The team has since obtained a direct line to the Fed, which has significantly decreased their onboarding timeline for FIs. Randy and Jake are builders and are hyper-focused on building a solution that supercharges community banks into deposit-gathering machines. Braid is positioned at the inflection point where we love to invest – minimal to no funding, robust early product, and traction. Randy and Jake are making bold bets on Braid's potential to supplant the revenue streams flowing through BaaS companies entirely, reshape the market landscape, and facilitate direct interactions between any company launching fintech products and banks of any size.