Mexico City — In the wake of the Silicon Valley Bank (SBV) implosion, startups are shifting their money to other havens, such as Mercury Bank and neobank Brex, but those may not be a true replacement for SBV, especially for fintechs, as it was the bank for startups not only in the US, but also in Latin America.
Silicon Valley Bank was a lender, banking partner and payments technology provider that had 2,600 fintech clients that have now had to move their accounts to other institutions.
According to SVB, its clients account for 71% of all fintech initial public offerings (IPOs) since 2020.
For fintechs, in addition to venture debt financing, SVB was a gateway for commercial payments and the acceptance of online payments. In fact, it was not marketed as a bank, but as a financial technology partner.
SVB’s partners and customers in the financial technology sector span a wide range of companies, from early-stage to publicly traded, and which operate in more than a dozen fields within the financial technology space.
Its clients include startups in four particular areas where partnerships are most common: payments, expense management, lending and accounting.
The recent events may leave a hole in the fintech segment that will not be easily filled. While switching banks for your deposits may be straightforward, finding and establishing a processing partner and payment structure is a more difficult process, according to CB Insights.
In 2020, SVB closed the Latin America Growth Lending Fund, a $30 million venture and growth debt fund with Partners for Growth (PFG) and IDB Invest. The objective of the fund was to unlock innovation by providing capital to help emerging growth companies in Latin America and the Caribbean.
From this fund, PFG participated in the $34.3 million credit line raised in 2021 by Tribal, a US paytech with a presence in Latin America, and which would serve to strengthen its position in Mexico in the segment of credit providers to small and medium-sized enterprises (SMEs).
When consulted by Bloomberg Línea, Tribal assured that its operation is developing normally and that it has no direct exposure to the current situation at Silicon Valley Bank.
The startup stated that it is committed to supporting its clients and providing alternative financial solutions to companies affected by the SVB implosion.
To that end, Tribal has partnered with Atomic Invest to offer clients cash management accounts at BNY Mellon, which will allow them to continue their operations seamlessly.
Options as an alternative to SVB
Brian Requarth, co-founder of Latitud, a platform that drives entrepreneurship in Latin America, recommended at a seminar on the impact of SVB’s collapse that startups should diversify their deposits to Mercury and Bex.
But these options might not be a perfect substitute for SVB depositors.
“This had differentiated itself as a startup bank by taking the risk of opening accounts for those who don’t have a banking track record and not everyone does,” Chito Padilla, CEO of Fintonic, told Bloomberg Línea.
Padilla says he tried to open an account at Chase Bank and Wells Fargo and was turned down. Fintonic was a client of SVB, but stopped being one early last year because it found higher yields at Mercury, about 20 percentage points higher than SVB. In addition, the financial institution is willing to open accounts and lend to startups.
In an email, Mercury assured that its accounts are safe and insured up to $1 million by the Federal Deposit Insurance Corporation (FDIC), the US government entity that provides deposit insurance to customers of US commercial banks that was created as a result of the Great Depression of 1929, and which is above the industry standard of $250,000.
“This is made possible by our regulated partner banks and the use of sweep networks, which distribute your deposits among multiple trusted banks (including Goldman Sachs and Wells Fargo), reducing the risk of a single point of failure,” Mercury told its depositors.
The bank said it has diversified deposits outside of technology, which reduces volatility and helps ensure stability for Mercury’s customers.
Mercury also explained that it has remained disciplined on the investment side throughout the low-rate environment and kept its bond portfolio with short durations, which means there is not a large risk of market adjustment like we have seen with SVB.
For Francisco Meré, founder and CEO of Uellbee, switching accounts to Brex, for example, is the same as being in a neobank, in order to have the backing of the FDIC.
Meré believes that SVB did have a special function because it was a specialized bank for startups, in addition to being a full-fledged bank because it had its own brokerage house.
Although startups were able to recover their money, for Padilla, the fall of SBV “has an impact on reputation, on the ecosystem and on the suppliers we need to grow, and on financial institutions”.