Revolut, Brex partners caught in sale of regional bank

The banking partners of Revolut, Brex, Chime and other digital-only banks have been caught up in a regional bank sale following the collapse of Silicon Valley Bank and Signature Bank. Sometimes called neobanks, these fintech specialists offer branchless banking, giving customers access to checking and savings accounts from their smartphones.

Neobanks are technically not real banks as they do not have an official bank charter. Instead, these fintech companies partner with smaller, sometimes regional banks that are chartered and FDIC-insured to hold customer deposits.

Over the weekend, US federal regulators took over both SVB and Signature Bank and said all deposits will be made available to customers. The government has reiterated that it will act quickly to protect depositors, but that has not stopped investors from selling off shares in mid-sized US banks fearing further bank runs.

The downfall of SVB and Signature Bank has exposed the risk that bank-as-a-service fintechs pose to the financial health of their partner banks.

Shares in Metropolitan Commercial Bank, the banking partner of Revolut’s US arm, fell almost 50% since Thursday and fell around 44% on Monday.

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Bancorp shares fell more than 20% since Thursday morning, while selling intensified Monday, falling more than 10%. Bancorp is one of two partners of Chime, one of the largest neobanks in the United States.

Brex, a competitor of SVB that offers financial services to startups and other companies, has seen shares of one of its partner banks, Fifth Third Bancorp, fall nearly a quarter since Thursday, losing nearly 10% by the time markets closed Monday.

Brex CSO Art Levy said Brex has FDIC coverage across nine partner banks for accounts with less than $2.25 million. For accounts above $2.25 million, Brex uses money market funds that hold almost exclusively cash and US Treasuries.

Signature Bank, which was shut down by New York regulators on Monday, was a banking partner for blockchain companies Coinbase and Paxos.

Several fintech companies have rushed to reassure customers that their deposits are secured.

Paxos, which had $250 million in Signature Bank, assured customers that it “has private deposit insurance well in excess of our cash balance” and that “all customer deposits with Signature Bank will be fully guaranteed and are expected to be made available to customers on Monday.” ” Coinbase, which had $240 million in Signature as of Friday afternoon, made similar assurances.

Varo and Sofi are one of only a few peers who have received an official charter. London-based Revolut has also applied for a banking charter for its US arm. Many neobanks avoid charters, citing regulatory concerns and the need to make all deposits FDIC-insured.

Several fintechs such as Dave and Mercury have a relationship with Tennessee-based Evolve Bank & Trust, which is not publicly traded. The bank had a previous relationship with failed crypto exchange, BlockFi, where it acted as the issuer of the company’s credit cards. Evolve had also worked with FTX previously, but it is not clear in what capacity.

Other fintech startups that have partnered with smaller banks may also feel the pinch. Tassat, a blockchain distribution startup valued at $400 million according to PitchBook data, had partnered with Western Alliance Bank for a digital payments platform, but the bank’s shares had fallen more than 60% since the crisis began on Thursday.

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Shares in Metropolitan Commercial Bank, the banking partner of Revolut’s US arm, fell around 44% on Monday. Featured image by Tada Images/Shutterstock.