Following the sudden collapse of Silicon Valley Bank (SVB), digital banks quickly swooped in to take on the fallen bank’s customers.
Key Details
- As SVB and federal regulators worked to ensure a broader bank run did not overtake the financial industry, online banking institutions swiftly opened new accounts and brought on new customers.
- While digital banks quickly accrued new customers, they may not be able to hold onto those customers over the next week, Forbes reports.
- San Francisco-based digital bank Mercury says it has been opening some new accounts in as little as an hour.
- Bain Capital Ventures partner and fintech investor Merritt Hummer says big banks like JPMorgan, Bank of America, and Citi will most likely come out on top.
Why it’s news
While larger banking institutions have the advantage, smaller digital banks have a few perks that startups cannot ignore. Along with the ability to move quickly, digital banks can give more attention to startups and venture capital investments.
The largest American bank, JPMorgan, will most likely see the greatest benefits from SVB’s collapse. However, unlike digital banks, JPMorgan can’t open accounts as quickly.
This focused attention was one of the reasons, so many startups and entrepreneurs worked with SVB. Now, digital banks look to give this same benefit, Forbes reports.
Digital banks have another perk for startups—they are not technically banks. Instead, digital banks work alongside traditional banks to keep customer deposits in insured accounts. This allowed digital banks like Mercury to offer $3 million in FDIC coverage on Monday. A week before, the bank offered $1 million. The limit on FDIC coverage is $250,000 per depositor, but Mercury can divide customer funds across several secure banks, thus raising the amount of coverage.
Since SVB’s collapse, digital banks have built up a store of goodwill with tech companies that would have taken years. While many companies will likely transfer their accounts to larger banks, some might just stay with the digital banks and accelerate their popularity.