The collapse of the Silicon Valley bank provides valuable lessons around the world
- March 19, 2023
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Welcome to The Interchange! If you’ve received this in your inbox, thank you for subscribing and for your vote of confidence. If you read this as a post on our website, please subscribe here so that you can receive it directly in the future. Maria Ann is taking a well-deserved break this week, so I’ll fill in for you and bring you the hottest fintech news from the previous week. Now let’s dive into fintech news because you’re probably wondering what’s going on with your favorite bank and I promise I’ll get to that first. Let’s go! — Christine
We’ve learned a lot more about the Silicon Valley bank collapse since you last read this newsletter (lots and lots).
The latest was that SVB Financial filed for Chapter 11. And First Republic Bank, which was mired in all this chaos earlier this week, found some saviors in the way of some of the country’s biggest banks, which were reportedly coming together to bolster the bank with around $30 billion in bailout funds.
This week, some of my colleagues have delved deeply into the impact on consumers, businesses, banks, investors, etc. – around the world – who have placed deposits with the SVB. If anything, it shows how interconnected the startup ecosystem really is.
Annie Njanja and Tage Kene-Okafor found out about African companies hit by the collapse of the SVB. For example, they spoke to Nala, a mobile money transfer startup that was able to withdraw its funds from the SVB before it collapsed. In contrast, Chipper Cash was among several startups that didn’t have access to some of their funds at the time.
They noted how productive SVB was in the startup ecosystem when it came to companies opening SVB bank accounts, particularly those that were part of a US accelerator program, and even explained how difficult the process was when potential Account holders did not have a social security number or established US address. They also wrote that these types of incidents, along with existing risky banking options in Africa, “have increased the need to develop indigenous solutions.”
“If you want US-based banking that gives investors credibility (yet), those are your options,” said Stephen Deng, co-founder and general partner of early-stage Africa-focused venture capital firm DFS Lab. “I think what is changing is that founders need to know how to manage counterparty risk. Sweep networks and treasury management are paramount.”
Meanwhile, Brian Heater reached out to founders and investors in the robotics sector, a typically capital-intensive industry, and what the implications might be for them in terms of accessing future capital and further diversifying funding sources.
An interesting comment came from Playground Global’s Peter Barrett, who said: “If SVB rises from the ashes – and we act to curb the weaponization of concentrated digital media – the money for capital-intensive technologies like robotics may not become incredibly expensive. On the other hand, now that we have motor memory for bench runs, things could get messy. How would an opponent best attack innovation in robotics? We’ve seen how destructive a handful of influential tweets and emails can be in winding down a cherished and respected 40-year-old institution. Why bother with a cyberattack when a few well-placed capitalized words from seemingly reputable sources can hurt thousands of our most innovative companies?”
As a matter of fact. As you can imagine, all of this is evolving, so stay tuned for more.
Further, we are constantly being told to diversify our holdings in the financial world – have money in a number of different mutual funds or have some money in checks and other money in savings accounts. Over at Zoo House News+, all that SVB business got Natasha Mascarenhas thinking about how to do it.
She spoke to some founders and investors about the concept of “single points of failure”. Especially where else a company can diversify – for example with founding teams and succession planning – to ensure that it doesn’t put all its eggs in one basket.
Before I go into more news, I wanted to mention that while there are people withdrawing money from the SVB, there are still some who support the bank. For example, Brex announced that it would deposit $200 million of its money with SVB in exchange for other major banks. CNN also reported on others.
Some companies that provide banking services to start-ups have stepped up after the collapse of Silicon Valley Bank to offer their services and help companies sustain cash flow. Mary Ann reported on some companies like Rho that were seeing a surge in new customers, including Mercury, which responded quickly over the weekend to launch a new product called the Mercury Vault. This product “offers customers up to $3 million of expanded FDIC insurance through a new post-Silicon Valley Bank collapse product. That’s 12 times the institutional industry standard of $250,000 in FDIC coverage offered by other institutions.” On Friday, the company increased that, Announcement on Twitter that “Mercury customers will have access to up to $5 million in FDIC insurance through Monday — 20 times the per-bank limit.”
It’s official: Starting Monday, Mercury customers will have access to up to $5 million in FDIC insurance — 20 times the per-bank limit.
— mercury (@mercury) March 17, 2023
Stripe has been quite active this week. I’ve updated a previous story Mary Ann was working on about Stripe seeking additional funding. At the time, it was expected to fetch about $2 billion, but instead Stripe ended up at $6.5 billion but at a discounted $50 billion valuation. Series I proceeds will be used to “provide liquidity to current and former employees and to meet employee withholding obligations related to stock awards, resulting in the retirement of Stripe shares, which will offset the issuance of new shares to Series I investors.” Also, Stripe was chosen to work with OpenAI to monetize ChatGPT and DALL-E.
Manish Singh reports, “PhonePe has raised an additional $200 million in an ongoing round, a move that has now helped it attract $650 million in recent weeks despite the market slump as the Indian fintech giant raises its War chest after its recent split from parent company Flipkart. Walmart, which owns the majority of PhonePe, has invested $200 million in the startup. The current round pre-values the Bengaluru-headquartered company at $12 billion. The startup has announced plans to raise up to $1 billion in the current round.”
Natasha Mascarenhas reports: “Founders are still shaking off the dust a week after the Silicon Valley bank collapse. Rumors are circulating about who could buy the ailing bank’s assets. Some of the top firms asked their portfolio managers to diversify their assets when the bank collapsed, and continue to do so despite regulators stepping in to guarantee all depositors have access to their stored cash. While asset diversification feels obvious in hindsight, actually following this advice is harder than it seems.”
According to Sift’s Q1 2023 Digital Trust & Safety Index, Buy now, pay later (BNPL), businesses saw a whopping 211% increase in payment fraud in 2022 compared to 2021. The report examined over 34,000 websites and apps and highlighted some specific scams, the scammers use to steal from BPNL companies and traders. For example, Telegram is one platform where Sift said “a rapid proliferation of scammers are promoting the services they could offer using stolen information,” including fake credit cards and selling compromised email credentials. In one scheme, Sift watched a scammer post “unlimited access” to an account with three top BNPL providers for just $35.
Adyen, which offers end-to-end payment capabilities, said it has evolved its digital authentication solution, combining security and seamless checkout experiences for its customers. In testing, Adyen was able to authenticate the consumer on behalf of the issuer while remaining on the merchant’s checkout page, which helped merchants achieve up to a 7% increase in conversions.
Financing and M&A
Seen on Zoo House News
Wingspan raises $14 million for its all-in-one contractor payroll platform
Here’s a new corporate card startup backed with $157 million in equity and debt chasing Brex, Ramp
Metaverse payments platform Tilia receives a strategic investment from JP Morgan
Indonesian company Broom is expanding automated asset-backed loans for used car dealers
Nigerian credit-led fintech FairMoney acquires PayForce in retail merchant banking
Masttro Secures $43 Million in Growth Capital Investment Led by FTV Capital
Cover Genius, an embedded protection insurtech, acquires Clyde
Greek fintech Natech snags €10m convertible bond to expand
Payment infrastructure startup Payabli closes $12 million
Apexx Global, a payment orchestration startup, raised $25 million
Chile-based recurring payments company Toku raises $7.15 million
That’s it for now. I hope you enjoyed my take on Mary Ann’s column. Don’t worry, she’ll be back for the March 26th edition! Have a nice week