Posted on 03/12/2023 1:15:19 PM PDT by EBH
An emerging concern flowing from the dramatic collapse of California’s Silicon Valley Bank is the extent to which settlement risks are set to impact ecommerce transactions involving Australian-based merchants, consumers and payments gateways.
The operations of Silicon Valley Bank were seized by the Federal Deposit Insurance Corporation last week after a customer run on its US$170 billion deposit base.
SVB came under extreme liquidity pressure following the release of its full year accounts in late February in which it reported sharp falls in the market value of investment portfolios that were skewed to long-term mortgage-backed securities.
The collapse of depositor support for the bank resulted in the FDIC taking control of the business on Friday and freezing customer accounts.
SVB’s demise is almost certain to impact Australian startups and venture capital funds who were supported by the bank in their efforts to globalise their activities.
As speculation swirls over which local startups might have deposits stuck in the stricken bank, the focus of local investors this morning will be on disclosures from ASX-listed fintechs clarifying their ties with SVB.
There are some high-powered local connections with the Californian bank.
Perth-based firm, Venture Capital Consultants, has promoted itself as the “exclusive Australian adviser for SVB Financial Group” and one of its partners Larry Lopez is a former managing director and president of multiple SVB businesses.
Lopez, who is a sought after adviser to Melbourne and Perth based venture capital firms such as RCF Jolimont, is believed to have played a pivotal role in linking Australian startups with SVB.
SVB’s global head of payments Kathleen Pierce-Gilmore is a director of struggling ASX-listed buy now pay later provider Sezzle Inc.
It is not clear whether Sezzle uses SVB as transaction banking and deposits in its US operation, however the board connection might force Sezzle to clarify its business relationship with the bank.
Any negative impact on Australian fintechs might end up being negligible if the FDIC finds a buyer for SVB’s asset and liabilities or achieves a carve-up of its operations.
Meantime, SVB’s failure has created uncertainty and disquiet in the US and international payments market.
A swathe of the world’s leading online marketplaces such as Etsy and Shopify and payments companies such as Stripe and Square use SVB as a transaction bank.
CNBC reported on Saturday that Etsy began notifying US-based sellers on its platform of delays to remitting payments to their accounts.
“We wanted to let you know that there is a delay with your deposit that was scheduled for today,” Etsy told merchants in an email.
“We know that you count on us to help run your business and we understand how important it is for you to receive your funds when you need them.”
“Please know that our teams are working hard to resolve this issue and send you your funds as quickly as possible.”
Etsy has 7.5 million merchants operating on its platform, including at least 5000 across Australia who rely on local payment gateways such as Worldpay, Adyen and PayPal to facilitate card payments and disburse funds to their accounts.
It is not clear whether Etsy’s gateway partners in Australia are wearing the risk of settlement problems relating to the SVB collapse or whether local merchants are already missing payments on sales to US consumers.
Arizona-based payments investor and commentator Patricia Carlin on Sunday highlighted another looming impact of SVB’s demise.
Leading global payments processor Stripe uses SVB as its transaction bank and also encourages merchants it is engaged with to open accounts with the bank.
Through Stripe’s “Atlas program”, merchants were encouraged to open accounts with SVB that allowed them to accept payments from around the world.
Carlin warned in a LinkedIn post the arrangement could now pose a threat to Stripe’s business if its most successful merchants kept their money at SVB.
“If companies used Stripe for their payment processing and went with SVB for their bank, all payments processed were deposited in their SVB bank accounts AND they didn’t send those funds off to other banks…their money is frozen,” wrote Carlin.
“This means they have no funds to pay their employees, fulfil their products and services, or pay for basic operational costs.”
Carlin also highlighted Shopify’s payments arrangements with SVB.
Shopify encourages merchants to hold their funds in so-called “master merchant accounts”.
It is not yet known what proportion of Shopify’s US merchant base stored proceeds from online sales in such accounts held at SVB.
In response to a Twitter user’s enquiry on Sunday, Shopify chief executive Tobi Lutke said the SVB impact would be “minor” for the company.
“We use SVB as one of around12 or so banks spread over mostly Canada and US,” the Shopify boss posted on Twitter.
“Canada has stricter banking risk regulations.
“A small portion of our US operational fund flows is tied up in SVB but we are working around it and it should be business as usual.”
Tons of small retailers use Stripe/Square in my niche industry. Bet they have no idea their payment gateway is at risk.
A swathe of the world’s leading online marketplaces such as Etsy and Shopify and payments companies such as Stripe and Square use SVB as a transaction bank.
Steve Looker, now on Rumble Video too as of Friday
Silicon Valley Bank Collapse: Government Action Today? - LIVE Breaking News Coverage
Congress and the free spending Biden administration is ULTIMATELY the culprit here.
It’s all an extension of Fed policy to curb inflation, reversing a 13-year zero-rate policy. And why did inflation occur? Isn’t it because of the massive increase in government spending, which resulted in huge printing of money ?
This of course pushed up rates in the middle and right side of the yield curve, devaluing existing bond holdings locked into older rate patterns. Investors noticed and then depositors too. The high-flying institution that specialized in providing liquidity in industries that have lost their luster suddenly found itself very vulnerable.
In addition, the SVB and probably other banks were exposed with a portfolio of collateralized mortgage obligations and mortgage-backed securities. But with rates rising, those are coming under stress too as high leverage in housing and real estate become untenable amidst falling valuations. Borrowers are finding themselves under water and that in turn adds to stress on lenders.
And where did SVB, and the entire banking industry, get the funds to bulk up their portfolios with such debt holdings? You guessed it: STIMULUS PAYMENTS!’
Hundreds of Billions flooded in and it had to be parked somewhere making some return. At the time it seemed like a good deal, until Fed policy changed.
Immense government spending which produced debt that was quickly monetized and eventually caused inflation, prompting the Fed to reverse course with the largest/fastest rate increases in history. And guess what? IT’s STILL GOING ON!
This destabilized (or restabilized) production structures away from the right side of the yield curve toward the left, shifting capital in search of return to the consumer-goods sector. Labor has begun to follow, thus creating a surplus of resources in information tech and a shortage in retails.
It was always naïve to think that this shift would take place without touching the banking institutions that shoveled leverage in the direction of industries that thrived during lockdowns but are cutting back massively
Apparently Transfer Wise has some exposure in SVB...oh well!
Silicon Ripoff Bank
Run by libtards for libtards
See, there is lots of finger pointing on FR this weekend. This ‘contagion’ is affecting people and small businesses that had no idea they were even remotely connected to SVB in some part of the chain.
“””in late February in which it reported sharp falls in the market value of investment portfolios that were skewed to long-term mortgage-backed securities.”””
We have known for years that 1% ten treasury bonds or 3% 30 year mortgages would not last forever.
Yet, SVB was a binge buyer of those bonds and mortgages.
When Biden’s Inflation began two years ago, SVB apparently did nothing to sell off those holdings when their losses would have been minimal.
California is Venezuela without the personality.
I’m supposed to get paid by Etsy tomorrow. We’ll see what happens.
from CFP-—
“””Mark Cuban reportedly had between $8-10 Million at Silicon Valley Bank, per the Street.””””
What was the incentive for so many ‘rich and famous’ people to park millions of dollars in SVB??????
Were the ‘rich and famous’ overtaken with empathy regarding the mega-woke culture at SVB????
this is huge
From what the venture capitals to small biz ...
I cannot understand the vitriol on FR. They just do not comprehend the reach and how this is going to push biz into only 4 banks.
I don’t think anyone will lose money (other than taxpayers). SVB and its depositors seem to have paid enough tribute to the Democrats over the years, to be ‘protected’.
I don’t get the hate either EBH.
This bank failure is going to have a big impact and a lot of people will be hurt.
Now once the money rates rise to a level that your public relations department of stockholder equity can no longer sustain.......it's fate Fatale.
I recently had to change reservation software.
I had only 4 choices of payment gateways to use. The software I need to use is only provided by a handful of companies.
The company I chose was the only one that offered a choice of gateways. Several of those gateways are on this list. I am grateful I didn’t choose those.
LawPay sent me an email that all is well.
Here is why there is vitriol:
https://www.zerohedge.com/news/2023-03-10/lulz-svb-website
They hate us.
We can hardly be blamed for hating them back.
I didn’t see hate as much as apprehension that the taxpayers are going to be on the hook. Also, is it true, as reported, that associates were receiving bonuses of $12,000. and upper management of up to $140,000. hours before the feds stepped in? If true, people have a right to be angry. We saw this in the past.
See post 17.
You must learn to hate your enemies.
I worry about the credit unions. I know they are generally stable but I see the big banks renewing their attacks on them as a means of getting at stable pots of money!
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