Fintech
Revolut, Brex partners caught in regional bank sell-off
March 13, 2023
The banking partners of Revolut, Brex, Chime and other digital-only banks have been caught up in a regional bank sell-off following the collapse of Silicon Valley Bank and Signature Bank. Sometimes called neobanks, these fintech specialists offer branchless banking, giving customers access to checking and savings accounts from their smartphones.
Neobanks aren't technically real banks since they don't have an official bank charter. Instead, these fintech companies partner with smaller, sometimes regional banks that are chartered and FDIC insured to hold customers' deposits.
Over the weekend, US federal regulators took over both SVB and Signature Bank and said that all deposits would be made available to customers. The government has reiterated that it will act swiftly to protect depositors, but that hasn't stopped investors from selling off stock in mid-sized US banks who fear additional bank runs.
The downfall of SVB and Signature Bank has exposed the risks that banking-as-a-service fintechs have to the financial health of their partner banks.
The stock of Metropolitan Commercial Bank, the banking partner of Revolut's US arm, was down almost 50% since Thursday and was down around 44% Monday.
Shares of Bancorp dropped more than 20% since Thursday morning with the sell-off intensifying Monday, shedding over 10%. Bancorp is one of two partners to Chime, one of the largest neobanks in the US.
Brex, a competitor to SVB that offers financial services to startups and other companies, has seen the stock of one of its partner banks, Fifth Third Bancorp, drop nearly a quarter since Thursday, with losses hitting nearly 10% as the markets closed Monday.
Brex CSO Art Levy said that Brex has FDIC coverage across nine partner banks for accounts with less than $2.25 million. For accounts over $2.25 million, Brex uses money-market funds that almost exclusively hold cash and US government securities.
Signature Bank, which was shut down by New York regulators Monday, was a banking partner for blockchain companies Coinbase and Paxos.
Several fintech companies have rushed to reassure customers that their deposits are secured.
Paxos, which had $250 million in Signature Bank, assured customers that it "holds private deposit insurance well in excess of our cash balance" and that "all customer deposits at Signature Bank will be fully guaranteed and expect to be made available to customers on Monday." Coinbase, which had $240 million in Signature as of Friday afternoon, gave similar assurances.
Varo and Sofi are some of only a few peers that have been granted an official charter. London-based Revolut has also applied for a bank charter for its US arm. Many neobanks eschew charters, citing regulatory concerns and the need to make all deposits FDIC insured.
Several fintechs like Dave and Mercury have a relationship with Tennessee-based Evolve Bank & Trust, which is not publicly traded. The bank had a previous relationship with failed crypto exchange, BlockFi, where it acted as the card issuer of the company's credit card. Evolve also had worked with FTX in the past, but it's not clear in what capacity.
Other fintech startups that have partnered with smaller banks may also be feeling the crunch. Tassat, a blockchain distribution startup valued at $400 million according to PitchBook data, had partnered with Western Alliance Bank for a digital payments platform, but the bank's stock had dropped more than 60% since the crisis began Thursday.
Shares of Metropolitan Commercial Bank, the banking partner to Revolut's US arm, fell around 44% Monday. Featured image by Tada Images/Shutterstock.
Neobanks aren't technically real banks since they don't have an official bank charter. Instead, these fintech companies partner with smaller, sometimes regional banks that are chartered and FDIC insured to hold customers' deposits.
Over the weekend, US federal regulators took over both SVB and Signature Bank and said that all deposits would be made available to customers. The government has reiterated that it will act swiftly to protect depositors, but that hasn't stopped investors from selling off stock in mid-sized US banks who fear additional bank runs.
The downfall of SVB and Signature Bank has exposed the risks that banking-as-a-service fintechs have to the financial health of their partner banks.
The stock of Metropolitan Commercial Bank, the banking partner of Revolut's US arm, was down almost 50% since Thursday and was down around 44% Monday.
SVB's collapse and the private market fallout: Complete coverage
Shares of Bancorp dropped more than 20% since Thursday morning with the sell-off intensifying Monday, shedding over 10%. Bancorp is one of two partners to Chime, one of the largest neobanks in the US.
Brex, a competitor to SVB that offers financial services to startups and other companies, has seen the stock of one of its partner banks, Fifth Third Bancorp, drop nearly a quarter since Thursday, with losses hitting nearly 10% as the markets closed Monday.
Brex CSO Art Levy said that Brex has FDIC coverage across nine partner banks for accounts with less than $2.25 million. For accounts over $2.25 million, Brex uses money-market funds that almost exclusively hold cash and US government securities.
Signature Bank, which was shut down by New York regulators Monday, was a banking partner for blockchain companies Coinbase and Paxos.
Several fintech companies have rushed to reassure customers that their deposits are secured.
Paxos, which had $250 million in Signature Bank, assured customers that it "holds private deposit insurance well in excess of our cash balance" and that "all customer deposits at Signature Bank will be fully guaranteed and expect to be made available to customers on Monday." Coinbase, which had $240 million in Signature as of Friday afternoon, gave similar assurances.
Varo and Sofi are some of only a few peers that have been granted an official charter. London-based Revolut has also applied for a bank charter for its US arm. Many neobanks eschew charters, citing regulatory concerns and the need to make all deposits FDIC insured.
Several fintechs like Dave and Mercury have a relationship with Tennessee-based Evolve Bank & Trust, which is not publicly traded. The bank had a previous relationship with failed crypto exchange, BlockFi, where it acted as the card issuer of the company's credit card. Evolve also had worked with FTX in the past, but it's not clear in what capacity.
Other fintech startups that have partnered with smaller banks may also be feeling the crunch. Tassat, a blockchain distribution startup valued at $400 million according to PitchBook data, had partnered with Western Alliance Bank for a digital payments platform, but the bank's stock had dropped more than 60% since the crisis began Thursday.
Related read: Enterprise fintech takes a bigger bite of the VC pie
Shares of Metropolitan Commercial Bank, the banking partner to Revolut's US arm, fell around 44% Monday. Featured image by Tada Images/Shutterstock.
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