Silicon Valley Bank and the Regional Bank Crisis: How Companies Can Safeguard for the Future
Founded in 1983 and headquartered in Santa Clara, CA., Silicon Valley Bank (SVB) served as a pillar in the tech community, especially during the recent valuations boom of the past few years. SVB was a mainstay in the United States tech sector, providing banking services to almost half of the country’s startups, VC firms, life-science companies, and tech giants alike.
As a trusted and long-time industry partner, SVB operated for 40 years as an important platform that played a pivotal role in serving the startup community and supporting global innovation. For SVB partners, they were more than a bank—they were a vital support system and a valued member of the tech ecosystem.
The news of their collapse has sent shockwaves through the industry. Reactions have ranged from stunned to curious, supportive, and panicked. However, recent events could be a catalyst for companies to evaluate their current operations and safeguard against future disruptions.
What Does This Mean for Companies?
Many unknowns still remain—other highly exposed banks could end up in a similar situation—which means that companies should focus on moving to safety. CEOs are responsible to shareholders, customers, and employees, and fund protection is important right now. The FDIC protected uninsured funds in the SVB case, but they didn’t say they would cover any uninsured funds in other cases.
What’s even more critical is that this is a tremendous opportunity for fraudsters. Suppliers are telling customers not to send payments to their SVB accounts, but to new accounts. Without safeguards, fraudsters can pose as the supplier and convince customers to send funds to a fraudulent account. Swift action should be taken to address this, and if you don’t partner with a company like Tipalti that is secured, you should call your supplier’s main phone line and validate account information immediately.
For our business, Tipalti runs on Wells Fargo, Citibank, JPMorgan Chase, and Visa, providing redundancy. Because of this—in addition to the fact we are a licensed payments institution in both the US and UK—we are seeing new and existing customers moving more funds to us from SVB, smaller regional banks, and payments automation providers who partner with those banks. Some of this change is psychological. They’re not looking at balance sheets—it’s investors urging businesses to move to safety and companies immediately taking that action.
Best Practices for Safeguarding Funds
Businesses must be aware of the risks involved in partnering with a single bank or non-regulated payments provider, as this can jeopardize their funds, reputation, and operations. Following the de-regulation of regional banks in 2018 and SVB’s recent collapse, this issue has now spread to regional banks like First Republic. With economic uncertainty already at an all-time high, the fallout could have a ripple effect on the industry and potentially beyond.
A single reliance on any one bank is unsustainable, and redundancy must be prioritized and built-in. Funds should be diversified across multiple banking partners in case one fails, and ideally, these funds should be with tier 1 banks that have greater regulatory oversight and are less likely to fail.
When partnering with a payments automation provider, it’s important for companies to prioritize technology providers that are regulated and use multiple credible blue-chip banking partners in order to de-risk their global financial operations.
A regulated global payments solution provides added safety benefits to customers. As a Money Services Business (MSB) that is registered in every state that requires it—as well as in the United Kingdom with the FCA—Tipalti has spent many years and made significant investments to acquire and maintain our US money transmitter and FCA licenses. To ensure there aren’t any disruptions to your payout operations, Tipalti provides the following:
- Protected Funds
Licenses provide assurance to customers that their funds are protected and that all payments are made through a compliant and safe platform recognized by financial regulators globally.
- Fast, Accurate, and Transparent Payments
Instead of dealing with a bank or third party, work directly with your payout provider if there are payment issues, disputes, or errors.
- Improved Payment Reconciliation
Ensure all payment status and data from each payment method is rapidly reconciled, normalized, and directly synced with your ERP or accounting system.
- Reduced Payment Fraud, Penalties & Errors
Proactively screen payees through national blocklists (OFAC, EU, HMC) prior to all supplier payment attempts to block fraudsters who may be concealing their true identity.
- Faster Due Diligence, Approval, and Implementation
Instead of working directly with the bank’s timeline, a licensed money transmitter controls the entire compliance review process to ensure due diligence.
In times of uncertainty, it’s important to rely on technology partners you can trust. With regulatory oversight, Tipalti directly follows and adheres to the laws designed to protect you.
No one could have predicted that SVB would go under—it’s unimaginable to most. SVB has been integral to the global tech world since its inception. Typically, banks don’t have positive emotions attached to them, but everyone working with SVB enjoyed their interactions and thought they were great partners.
There are still many unanswered questions that remain in the wake of SVB’s collapse and the regional bank crisis. Should companies partner with a higher diversified national bank? Will big banks want to back tech? And what will regulators do—will they learn from this and change policies that impact the industry?
Only time will tell, but companies can take action to ensure that the funds they have are protected. With a focus on bank redundancy, quality financial partners, and fraud prevention, companies should focus their resources on what they can control—the top priority now is to safeguard their operations for the future.