Silicon Valley Bank collapse sends ripples across industry

Corporate banking startup including Brex, Rho and Mercury saw a spike in clients last week when Silicon Valley Bank imploded.

Why it’s important: These startups must now prove that they are worthy of keeping the new business.

Status: Corporate fintech platforms rose to prominence thanks to their fast and better technology. That efficiency was decisive for their soaring popularity after SVB collapsed.

• “Thursday was by far the biggest day we’ve ever had,” says Mercury CEO Immad Akhund Lucinda, with reference to the company’s inflow.
• Corporate card company Brex similarly received “billions” in deposits Thursday, according to CNBC.

Zoom in: “Bank partnerships have enabled fintech to build products and reach customers that have never been reached before in the financial system, says Lead Bank CEO Jackie Reses.

• “You saw it in OPS; you’re seeing it now with companies offering payday lending products very quickly,” she said. Several companies, including Brex, stepped in specifically to lend to startups struggling to make money.

Yes, but: Investors with whom Lucinda spoke in recent days have told their companies to diversify — to move a more balanced portion of their company’s money to a larger corporate bank — given concerns about the strength of regional and smaller banks.

• “I think using a neobank is a good idea in the medium term to meet salaries, but it’s a pretty bad idea in the long term,” says Tribe Capital’s Arjun Sethi. Several of these corporate banking startups focus on banking for other startups, he notes.
• Investors are advising companies to diversify into large corporate banks, with JPMorgan a target, in addition to peers Bank of America and Wells Fargo.

Of note: Fintech/bank partnerships, which allow charterless startups like Mercury and Brex to accept deposits, are already under regulatory scrutiny. After SVB’s failure, agencies are expected to increase pressure on the banking sector in general.

• “Banks are going to be forced to be more cautious,” says William Isaac, former FDIC chief.

Meanwhile: Akhund is well aware that fintechs operating in the space are playing catchup on the trust front. In response to SVB’s crisis, Mercury today launched a product called Vault.

• According to Akhund, deposits at Mercury can now be FDIC-insured up to $3 million — above the typical $250,000 — thanks to the sweep network, which places money with multiple banks instead of just one.