Beyond Banking: The Fintech World’s Affair with SVB

SVB’s focus on specific sub-sectors has ensured that it caters to the needs of fintechs of all sizes. While payments, accounting, expense management and lending were the four spheres where partnerships were most commonly forged, it also spread its wings into e-commerce, cryptocurrency and blockchain, wealthtech, insurance, as well as fraud and identity.

The far-reaching extent of SVB’s network is unmistakable, with numerous tendrils extending outward like a vast, intricate web.

• Its digital banking bona fides are evident through a number of strategic partnerships and investments, including a banking and credit relationship with mobile-only banking startup Varo. In the realm of digital lending, SVB participated in Tally’s $15M Series A funding round and supported cross-border trading platform Mundi with a $100M debt facility. The bank’s roots in digital payments are also apparent, as demonstrated by its collaboration with payment operations platform Modern Treasury to unveil Global ACH Capabilities for cross-border payments.
• For fintech infrastructure, SVB teamed up with data network Plaid to provide secure tokenised payment solutions, while also offering financing and venture debt to Liberis, a global embedded business finance platform.
• The bank’s support also extended to insurance provider Vouch with a $60M Series C round co-led by Ribbit Capital, and to European expense management platform Soldo with debt financing to help the firm deepen its focus on new markets – further showcasing its commitment to a multitude of areas, including insurance and expense management respectively.

SVB’s fallout will undoubtedly trigger a ripple effect, causing distress and concern across these segments to varying degrees. However, the payments industry may feel the brunt of the impact, given SVB’s significant involvement in this space. Payment fintechs, big or small, many of whom relied on SVB, now face the daunting task of finding a suitable replacement bank as many of them are cautious of the customers they onboard, placing greater emphasis on proof of revenue.

Amidst the tumultuous fallout that has sent shockwaves through the industry, delayed payouts, reduced trust, and implications on the bank’s lending business only compound the mounting issues. Yet, within the chaos, there are underlying opportunities for neobanks and other players in the cross-border payments space. These opportunities may prove especially beneficial for newly established fintechs seeking to capitalise on the turbulence and establish themselves as viable alternatives.

Intersection of Faith, Fear, and Fintech: Insights for the Journey Ahead

SVB’s failure has sparked challenging discussions surrounding the role of specialised banks. These banks introduce distinctive risks that require mitigation not only by the banks themselves but by the broader ecosystem. There is no doubt that difficult questions will need to be addressed to ensure the industry can move forward in a sustainable and secure manner.

SVB’s unique selling proposition was not the root cause of its downfall. Was it the overwhelming influx of deposits from startups during the tech bubble that created investment challenges for the bank? Or was it mismanagement of investments, which triggered a run on the bank and led to its closure? Alternatively, was it the rapidly spreading panic and frenzy on social media platforms that created a new social risk for banks to consider? Regardless, this serves as a stark reminder that both systemic and idiosyncratic risks must be identified and mitigated to some extent. The concept of putting all your eggs in one basket may no longer be a viable strategy, and instead, a significant reliance on enabling the broader value chain may be necessary for the future.

A shift towards decreased debt funding and further consolidation in the banking industry seems likely in light of recent events. Regulatory oversight of settlement bank relationships in the US and UK may also increase. However, the fintech sector is resilient and will require innovative entrepreneurs and supportive venture capitalists to navigate the new challenges that arise. While challenges remain, the long-term prospects for fintech remain bright, and valuable lessons learned will contribute to a stronger and more adaptable industry moving forward.