SVB roared fintech, but there is still a pot of gold at the end of the rainbow: founder
Silicon Valley Bank’s implosion has devastated the banking industry, but a fintech entrepreneur claims the collapse underscores the need for major changes in financial services.
“I recently listened to Elizabeth Warren and said that all banking needs to be super safe, like a water pipe, and that banking shouldn’t be fun, exciting and innovative,” said Kristy Kim, co-founder and CEO of alternative credit card provider TomoCredit. “I found myself thinking that’s so wrong.”
She added: “Sure, if our banking and credit systems were wonderful to begin with, that might be true. In reality, as in her example of water pipes, there are so many areas without well-constructed water pipes, just as there are a lot of potentially wonderful young people without access to credit. So in my opinion, there’s a lot of work to be done and we can’t be complacent.”
To be sure, there’s a lot of bad news for fintech right now, from Stripe’s shrinking valuation to Block’s ( SQ ) short-seller woes. However, there is still evidence that fintech investment is struggling. In 2022, VC deal activity in fintech was higher than it was in both 2019 and 2020, according to data from PitchBook.
Kim, meanwhile, said that, in her view, the system still requires an overhaul — and investors appear to be on board. “These systems are archaic,” she said.
TomoCredit was founded in 2018, and since then the company has raised more than $130 million in funding from investors such as Hyphen Capital and Gold House Ventures, as well as from financial giants such as Morgan Stanley (MS) and Mastercard (MA). San Francisco-based TomoCredit offers a credit card that helps consumers with bad or no credit build credit and customers can apply for a Tomo card even with no credit history.
“I think the banking crisis is in a sense an opportunity for fintech, because this shows that the banking and credit industry is never perfect,” Kim said. “I think it’s good to be skeptical from here, and continue to find room to improve and do things differently.”
“There’s Just Nowhere to Go”
But without SVB, early-stage fintechs lose a key partner, Kim said. She and TomoCredit actively chose to work with SVB a year ago, and received a $100 million warehouse, or line of credit, with the bank. Kim, who had been exploring collaborations with other banks, was excited about SVB in particular for its unique fintech expertise.
“For fintech specifically across the board, I feel like we’ve reached a type of scale,” Kim said. “SVB gave TomoCredit and other fintech companies validation – we were able to complete due diligence, prove that we had solid business models. This could be a very good opportunity for us to continue to build with that validation and we just have to find the new capital provider, adjust a little bit.”
When SVB collapsed, TomoCredit temporarily but completely lost access to that credit line, and today the future of that account is unclear.
So, it’s not over yet for TomoCredit and SVB, but the relationship is certainly up in the air. Already in the earliest days of SVB’s collapse, she received contact from other banks who wanted to work with her. But a few years ago, that would not necessarily have been the case. For less established fintechs, SVB was the bank that took a chance on them. So without SVB, the barriers to entry in fintech are higher than ever, Kim said.
“For an early-stage company that’s about to launch, it’s going to be difficult,” she said. “For example, if I was about to launch TomoCredit this year, I would be completely broke. There’s just nowhere to go… From a selfish perspective now, it might actually be a competitive advantage for Tomo, because it has wiped out the possibilities of a copycat coming out this year or next.”
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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