Regional bank sales capture more fintech business partners

Regional bank selling intensified Thursday as shares of Pacific Western Bank and Western Alliance fell sharply. Tennessee-based bank First Horizon was also hit after a proposed merger with TD Bank was called off.

For fintech startups partnering with regional banks, today’s events are broadcast another shock wave through the industry. From the earliest days of the crisis, the banks that offer savings and loan services to so-called neobanks have been under pressure from shareholders and depositors.

Shares of Los Angeles-based PacWest fell more than 50% Thursday afternoon, and Phoenix-based Western Alliance’s shares fell more than 35%, adding to losses that followed Monday’s collapse and sale of First Republic Bank to JP Morgan Chase. Since then, the shares of both banks have fallen more than 60%.

PacWest said in a statement that “the company will continue to evaluate all options to maximize shareholder value.” Western Alliance denied reports that it was looking to sell itself, in a statement to PitchBook.

Both banks have partnerships with several fintech startups, and recent events have exposed potential risks for startups depending on the financial health of their partners. Western Alliance had most recently partnered with Tassat, a blockchain payments provider, to provide customers with access to Tassat’s network. In April, PacWest collaborated with Unit, a start-up that offers financial services to other fintech companies.

Amber Fehrenbacher, director of marketing at Tillful, a startup that offers small businesses secured lines of credit, said the crisis has changed the company’s expansion plans and product offering. Tillful has partnered with Sutton Bank, another regional bank.

“We’re trying to keep our heads straight and focus on the job in front of us,” she said. Tillful recently canceled plans to launch an unsecured credit card after months of preparation.

“It just didn’t make sense to take on that debt and risk now,” Fehrenbacher said.

PitchBook senior analyst James Ulan said the plight of regional banks is putting a damper on fintech startups’ efforts to expand their offerings.

“Neobanks are mostly one-trick ponies that mostly offer debt accounts with a few bells and whistles,” Ulan said. “It’s hard to expand and build when you only have one thing to offer.”

The crisis, he said, could strengthen some partnerships and damage others.

Some investors are concerned that, in addition to hindering partnerships, the situation could lead to consolidation that would be unfavorable to fintech startups, making the banking system harder to navigate and relationships harder to cultivate.

Dusty Wunderlich, an executive at buy now, pay later startup Credova, said fostering relationships with smaller banks is key to a fintech’s success — and that the crisis and potential bank consolidation present a mixed bag for venture capitalists.

“The banking system is at the heart of the fintech ecosystem,” Wunderlich said.

He explained that consolidation could mean it would be easier for fintech startups to be acquired, but it could also make it harder for these companies to navigate and establish partnerships.

“It’s all a double-edged sword.”

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