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.”
I get all that concern. I do.
but what many are not understanding there is downstream harms happening
Example: Colleague of mine uses Stripe to process credit cards. Guess which bank is the pass-thru...SVB. She had no idea what bank the merchant service used. Deposits come in as from Stripe, not SVB. Guess what, any payments that were linger in the system are now frozen. And since this is Stripe ...they likely had way more than 250k moving into that pass-thru.
You are going to be the big meanie weanie and tell a conservative small business owner too bad so sad, you were stupid?
Get out of dodge with that mentality.
Fingers crossed.
How about eBay? Aren’t they based out of SF as well?
Anyway.
Riddle me this. If I want to send (or receive payments) why do I need to use all these myriad third parties like “Stipe” and “Square” in the first place?
I have a bank account. My bank has a routing #. The individual who I want to pay has the same damn thing. So why can’t I just zap off (or receive) payment directly?
Apparently SVB couldn’t sell them off, as they had been designated as HTM (Hold to Maturity) reserves under U.S. banking reserve requirements.
Do you really want to process 20,000 coffee transaction through your bank acct?
Mark Cuban reportedly had between $8-10 Million at Silicon Valley Bank, per the Street
That is chump change for Mark. He will eat and sleep the same tonight.
As Jeremy Irons character uttered: I’m telling you this is it.
“it” is also the cover up of The Bidet being on the commie pad info.
“tell a conservative small business owner too bad so sad, you were stupid”
They had no way of knowing—they are, like so many of us, collateral damage in the culture wars.
We didn’t declare this war.
Thank you. I appreciate that acknowledgement.
Some of the comments today have just been really getting to me.
Until we create an alternative, business is going to have to work with these entities on some level.
I understand it is hard to avoid dealing with woke crazy businesses.
I am constantly weighing convenience vs conscience on this stuff.
My personal approach (and I am not the only one) is that I have cut spending to the bone—except for local businesses that I know and trust.
Global Payments (GPN) stock is going to take a hit. Uh oh...
Note the fine print:
“Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
Grab the popcorn—this is gonna be fun to watch as the troubled banking industry gets to bail out its weakest members....
And the first domino tips....
Whether the tip trips the next tumble, and sets off the whole chain, depends on how closely they are spaced, and the potential for other ambiguities to either propagate or terminate the fall of the chain.
Believe me I understand the attitude. Recently asked a client who was thrilled with our service to leave a review on Google at our business listing. It was a polite no thank you. Wrote a beautiful recommendation to go on the website.
I have a few clients insist on leaving cash/checks too. Trust them? Yes, when I walk in and see MAGA stuff and Bibles sitting out. One even told me the shotgun was by the front door if I needed it. LOL. Told him no problem, Sig escorted me everywhere. Employees, I do not ask and they do not say. They just know where I stand.
But, 90% or so of my clients like to pay by credit cards. They like the assurances of being able to dispute things if they get bad service. Even though if the service is bad and we mess up...they would get a refund and then some in most cases. We’re a 5-star company and a go to company recommendation for many. Had a few mistakes over the last 15 years, but we make good before the client even asks. A cleaned carpet here or there and an occasional vet bill...eh? It’s part of the business.
Last week was taking care of a snowbird’s home. Furnace drain was clogged. Cost $100...client be assured we had his home undercontrol...priceless. This week he tipped us out $200.
Now imagine that service person not getting paid that tip because the bank failed.
Conservative clients are good people.
This is essentially the Lehman Bros, with the Bear Stearns moment yet to come.
Why would it matter? I’m not talking about that kind of thing, but it’s not my concern.
It makes no sense in the modern digital computer age that I have to go through a third party skimmer operation to make an electronic payment. See where I’m goin’ with that?
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