Fintechs that serve startups and other small businesses are getting a boost from the
"Right now, we're overwhelmed with inbounds for companies looking for a place to park their cash," wrote Brandon Arvanaghi, CEO of business banking platform Meow, on March 9.
"Since my DMs + emails are going a little crazy and I can't give the same level of personal service as I normally do. If you want to get a Mercury bank account quickly please use this link and we will try to prioritize. Though normal signups is also fast!" tweeted Immad Akhund, CEO of
"We (@mercury) have already onboarded 2x more customers today than we do on a normal weekday!" he added the next day.
Even challenger banks that focus on self-funded Main Street-type small business owners such as NorthOne were getting a piece of the action.
"We have a lot of new folks knocking on our door wanting to open accounts," said
It's unclear how meaningful the fallout of SVB will be for these neobanks in the long term. Although the treasury accounts that several of them advertise may be a relatively safe way to store millions of dollars, it takes time to settle transactions and may be impractical when an owner needs fast cash. Sponsor banks may be leery of depending on deposits from their fintech clients. Challenger banks don't have the cachet of large institutions.
"From what I am hearing, many depositors are leaning heavily toward moving their money to the big banks," said Michele Alt, co-founder of Klaros Group.
Fintech startups, however, may be more inclined to move their money to a neobank than mom-and-pop shops that more closely resemble consumer depositors. Alt expects business owners to start asking new questions.
"What has changed is needing to understand exactly what bank stands behind the neobank they are dealing with," she said. "That was a question these customers weren't asking a week or so ago."
Observers say that most other banks with an overlapping customer base are in a better place than SVB to manage the risks.
One notable advantage is that neobanks can often speedily open accounts online, which could have been appealing to both customers of SVB hastily looking for other options at the close of business on Friday, and other business owners who were jittery about the domino effect of SVB's failure.
"[These banks] have a great digital-only experience," said Jason Henrichs, CEO of Alloy Labs, a consortium for community banks that also invests in startups, while also noting that they often have fewer requirements than traditional banks when signing up.
Bensoussan found that many businesses were casting a wide net to open new accounts, so "those of us who could do instant account opening and all the right checks in time were some of the more promising options for them," he said, estimating that it could take someone less than 10 minutes to open an account at NorthOne. An account number is then issued on the spot.
Bensoussan saw queries come in as early as March 9. "The noise grew when news started hitting," he said. He said that NorthOne gained a "pretty meaningful" number of new customers.
Brandon Arvanaghi, CEO of Meow, reports that his company has gained several hundred new customers since March 9 and that assets invested through Meow's platform have nearly doubled since SVB made news. Meow's Treasury Bills product, which launched in September, lets businesses purchase Treasury bills using partner registered investment advisors and broker-dealers. The funds are custodied at BNY Mellon Pershing.
Meow's customers are typically businesses from seed stage through Series D. "Initially yield was top of mind [among customers] but now it's not as important," said Arvanaghi. "People are asking questions about counterparty risk and who the custodian is."
Some neobanks have pumped out new products or promoted existing mechanisms that let customers keep more than the FDIC limits by spreading deposits among multiple partner banks.
Brex published a blog post detailing the mechanisms it uses to protect funds above FDIC insurance limits. On March 11, it updated the post to note that its FDIC insurance limit would increase from $1 million to $2.25 million as of March 13; it did so by adding to the number of partner banks through which it spreads customer deposits, which are now up to nine institutions, including JPMorgan Chase. It also offers money market funds administered by BNY Mellon for amounts above that threshold.
On March 13, Mercury announced a feature called Mercury Vault that ensures customer deposits are insured up to $3 million by spreading deposits among its two sponsor banks' sweep networks. Amounts above $3 million are invested in a money market fund. Customers can track how their money is distributed and receive recommendations in a new dashboard.
Although such treasury products are useful, they may not solve the core issues, says Brian Graham, a partner at Klaros Group. It takes time to sell investments and for customers to access the cash. For example, Mercury estimates it would take two to five business days for customers to access the money in their Mercury Treasury accounts between selling the securities, converting them to cash and wiring the sums back to the customer's account.
"It's great for that true excess cash but it doesn't solve the problem for day-to-day operating accounts, where companies inherently need more than $250,000," said Graham. Insuring up to a few million dollars of deposits in checking accounts may only work for very small companies.
Henrichs worries about the longer term prospects of these business-oriented neobanks.
"Each one of the challenger banks is like a large depositor at the issuing bank they work with," he said. The "lumpiness" of deposits within this type of neobank — meaning, customers often move money in and out of their accounts in large sums — makes him wonder if sponsor banks will hesitate to lend aggressively on those deposits and thus, hold back on sharing revenue with their fintech clients.
"If you play that all the way out, now [a neobank's] business model is largely driven by interchange, and there is not enough juice in an interchange-based business model," said Henrichs.
For now, at least, some entrepreneurs are pleased with their options.
Trent Harvey, CEO and co-founder of insurtech Covie, was relieved to have diversified his startup's cash between Silicon Valley Bank and Brex.
"When we first set up Brex, we discussed, 'should we put more cash in Brex?'" he said in an
