The Impact of Silicon Valley Banks’ Collapse on Fintech
With over 2,600 fintech customers, Silicon Valley Bank (SVB) is more than just a bank and venture lender. Beyond banking and financing, SVB is also a technology partner for many fintech companies, acting as a gateway for commercial payments and accepting online payments, according to a new analysis from technology market intelligence platform CB Insights.
Overall, SVB has been a key stakeholder in the local fintech startup ecosystem, serving more than 2,690 fintech customers, the report states. These companies account for 71% of all fintech initial public offerings (IPOs) since 2020.
According to the report, the bank’s sudden collapse on 10 March 2023 has affected 45 fintech partners and customers spanning a dozen areas within the sector.
Data shows that payments, accounting, expense management and lending are the four areas where partnerships have been most common, with partners and clients including Affirm, a buy now pay later (BNPL) service provider; Settle, an all-in-one payment solution serving e-commerce brands; and Soldo, a payment and spending automation platform for businesses.
E-commerce, banking, blockchain and cryptocurrency, wealthtech, insurance as well as fraud and identity are other fintech segments SVB has been involved in, having built ties with the likes of Payoneer, a payment platform for digital businesses across borders; Shopify, an e-commerce company; Thought Machine, a fintech company building cloud-based core banking and payments technology; Circle, the company that operates the popular stablecoin USD Coin (USDC); Hometree, a home services company offering cover plans to UK homeowners and landlords; Stash, a personal finance app that combines banking, investing and advice; and Onfido, a digital identity and authentication specialist.
The collapse of SVB
On March 10, 2023, SBV collapsed following a bank run, marking the second largest failure of a financial institution in US history.
Founded in 1983, SVB specialized in technology startup banking, providing financing to nearly half of US venture-backed technology and healthcare companies, as well as banking and lending to venture capital (VC) firms. It was also an investor itself in a number of blue chip venture funds, as well as tech startups. SVB was, just before its failure, America’s 16thth largest commercial bank, with $209 billion in total assets at the end of 2022.
SVB imploded after being forced to sell securities at a loss due to higher interest rates. Frightened investors and depositors quickly began withdrawing their money, leading to a staggering $42 billion in deposits being withdrawn the day before the bank closed.
The California Department of Financial Protection and Innovation seized SVB on March 10, placing it under receivership by the Federal Deposit Insurance Corporation (FDIC).
First Citizens BancShares finally agreed to buy SBV earlier this week, assuming all deposits and loans in a deal that includes buying about US$72 billion of SVB assets at a discount of US$16.5 billion, according to a Bloomberg -report. In the UK, HSBC has stepped up to buy the local branch of the bank for GBP 1 in a rescue deal.
Impact on fintech
The collapse of SVB has had significant consequences for start-ups in the US and abroad. In Britain, an estimated 3,000 British tech firms were at risk of going under without a bailout, according to Fortunes.
“[Silicon Valley Bank] was really the heart and lungs of the tech start-up community in Silicon Valley – and around the world,” Dan Ives, an analyst at Los Angeles-based investment firm Wedbush Securities told the Guardian on March 15. come.”
In the fintech sector, the weakening of SVB will have a profound impact on the industry, says Flagship Advisory Partners, a fintech and mergers and acquisitions (M&A) advisory firm. It will cause many companies to look more deeply at the risks inherent in their operating models and begin to reduce them.
“SVB’s collapse serves as a stark reminder that fintechs typically have highly concentrated operating models gathered around a few key partners,” the firm wrote in a recent report. “This presents both systemic and idiosyncratic risks that need to be identified and at least partially mitigated.”
According to Flagship Advisory Partners, many fintech companies disclosed their deposit exposure to SVB in the days following the bank’s collapse, revealing that several of them had concentrated their cash there.
Circle, for example, disclosed that it had US$3.3 billion of its US$40 billion USDC reserves held in the bank; Xero, an accounting software provider in Australia, said it had a total exposure of US$5 million; and Payoneer said less than $20 million of its $6.4 billion total cash holdings were held at SVB.
Key fintech clients’ exposure to Silicon Valley Bank, Source: Flagship Advisory Partners, March 2023
