The reverberations of Silicon Valley Bank’s collapse will be felt for a long time. For forty years, it was the preferred supplier to start-up technology companies. However, its end was abrupt and brutal, and it shocked many. Financial breakdowns can be long and drawn out or short and sharp. SVB was the latter.
Action was taken quickly in the UK, for example, and it was sold at great speed to HSBC. British technology firms are said to have breathed a sigh of relief. However, there were real fears that failure to complete an agreement would have plunged customers into immediate crisis, which could spiral into other markets.
In the US and UK, the government stepped in to protect companies with funds deposited in the bank: loans and financial instruments from SVB financed other businesses. The company’s founders had been worried about how they would pay their employees. However, fintech digital banks launched emergency loan financing products. These solutions provided immediate capital to entrepreneurs and their employees who found themselves caught up in the fray. Fintechs were thrown into the best business terms with large technology operators who previously might only deal with traditional offline banks.
So in a way, the collapse has been a godsend for many fintech institutions. It could accelerate the shift away from traditional banks and drive the business into the arms of disruptive fintech start-ups. Fintechs have the advantage of not always being bound by the same strict regulations as conventional banks. Even companies that offer banking services to businesses like ANNA are not actually banks.
Most banking fintech companies collaborate with the traditional banks. This means that they can offer different products spread over several financial institutions. Moreover, they can do this while having zero deposits and debt on their balance sheet. In addition, fintechs can tap into a wide range of lenders that allow rapid innovation to meet the evolving needs of their customers.
Fintech is a phrase that covers a wide range of industries. However, the essence of a fintech is that they are businesses that use technology to provide financial solutions for businesses and customers. The granddaddy of fintechs is undoubtedly PayPal. At its launch, it was revolutionary as there was no secure way to make financial transactions online. Before, people had to send individual text messages with bank card numbers in one and expiry dates in another. They were then manually entered into the card machine. Then PayPal came along and all you needed was an email address.
We now have access to tens of thousands of fintech products without thinking about it, from shared payment methods like Klarna to payment processing platforms like Stripe. There are also mobile-first payment solutions that allow players at Boku casinos to use their UK mobile number to make deposits without connecting to their bank account.
Silicon Valley Bank was the largest financial institution for technology companies. It served nearly half of America’s venture capital-backed start-ups. Therefore, it was important to secure its financial future. When customers found out about problems, they withdrew $42 billion in just 24 hours. This could have led to a full-on bank run, but luckily regulators took control, and the FDIC took control.
This was a big relief for the start-up community in both the US and the UK. However, it has also led to some red faces and people asking how things got so bad. As a result, the technology community has become divided. Some fintech companies have taken advantage of the situation by bringing out quick solutions, as mentioned earlier. Others, however, had a nervous couple of days, unsure if their funding was secure.
Companies affected by the collapse include game company Roblox which had about five percent of its $3 billion in SVB. Digital media company Buzzfeed had most of its $56 million in cash in the bank. In addition, several crypto and blockchain operators had significant deposits in the bank. Sixteen technology and life science companies in Europe had $190 million in exposure at the time of the collapse. The names included Trust Pilot and UK-based PCI-PAL.
