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Home Challanger banks Fintechs Scoop Up Clients Following Collapse of Silicon Valley Bank

Fintechs Scoop Up Clients Following Collapse of Silicon Valley Bank

Fintech companies focused on serving startups and small businesses are seeing an influx of new clients after the collapse of Silicon Valley Bank (SVB). These neobanks are promoting their profitability, fast account opening process and their ability to safeguard funds above the Federal Deposit Insurance Corp (FDIC) limits.

Clients are also looking for banks to protect their money, and many businesses are asking new questions to ensure their funds are safe. However, it is unclear how meaningful the fallout of SVB will be for these neobanks in the long term.

This blog will explore how the neobanks are responding to SVB’s collapse and how they are attracting new clients.

Neobanks attracting new clients

Fintechs that focus on serving startups and small businesses have seen a boost in clients following the collapse of Silicon Valley Bank.

Neobanks such as Meow, Mercury, and NorthOne have reported an influx of new clients.

Meow CEO, Brandon Arvanaghi, said his company has gained several hundred new customers since March 9, and NorthOne CEO, Eytan Bensoussan, said they have seen a “pretty meaningful” number of new customers.

Neobanks promote profitability, fast account opening and safeguarding funds

The neobanks have been promoting their profitability, fast account opening process and their ability to safeguard funds above the FDIC limits.

Meow’s Treasury Bills product, launched in September, lets businesses purchase Treasury bills using partner registered investment advisors and broker-dealers.

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.

Uncertainty over the long-term impact of SVB’s collapse

It is 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 also do not have the cachet of large institutions, and Michele Alt, co-founder of Klaros Group, said, “From what I am hearing, many depositors are leaning heavily toward moving their money to the big banks.”

Neobanks’ response to SVB’s collapse

Neobanks have been promoting their ability to safeguard funds above the FDIC limits by spreading deposits among multiple partner banks. Brex, for example, published a blog post detailing the mechanisms it uses to protect funds above FDIC insurance limits. Mercury offers Mercury Vault, and NorthOne offers instant account opening and all the right checks in time.

Although such treasury products are useful, they may not solve the core issues. It takes time to sell investments and for customers to access cash. Mercury estimates it would take two to five business days for customers to access the money in their Mercury Treasury accounts.

In summary, the collapse of Silicon Valley Bank has resulted in neobanks attracting new clients, and many clients are looking for banks to protect their money. Neobanks have been promoting their profitability, fast account opening process and their ability to safeguard funds above the FDIC limits.

It is unclear how meaningful the fallout of SVB will be for these neobanks in the long term, and although such treasury products are useful, they may not solve the core issues.

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