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Building the Deconstructed Silicon Valley Bank
Plus; Why the Bitcoin ETF matters, my take on the Carta drama and Big shifts in corporate and investment banking
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Hey Fintech Nerds 👋
The industry is being reshaped.
Since the banking crisis a new breed of B2B Fintech company has emerged.
And they’re slowly building the Deconstructed Silicon Valley Bank.
Carta is learning the hard way trust takes decades to get and seconds to lose.
As a former banker, I believe the Bitcoin ETF matters because it will help institutions begin to trust digital assets, tokens and finance.
Never a dull week in Fintech.
Here's this week's Brainfood in summary
📣 Rant: Building the Deconstructed Silicon Valley Bank
💸 4 Fintech Companies:
Fragile - Embedded Asset Leasing for consumers
Coba - The US Bank account for LATAM workers
Acctual - Modern Treasury for Crypto
Obvious Money - The USD account for global citizens
👀 Things to Know:
Weekly Rant 📣
Building the Deconstructed Silicon Valley Bank
When the run on Silicon Valley Bank started, every founder and startup CFO panicked, trying to log into a failing online portal and move $100m anywhere else.
Never has the spinny wheel of doom been so anxiety-inducing.
The answer for many wasn't big banks but B2B Fintech companies.
Today's Rant.
How B2B Fintech won market share
A brief history lesson on SVB and what made it unique
B2B Fintech companies and how their products work
Deposits with "up to" $5m FDIC insurance
Finance ops and payment automation
Expense management that works
High yield and treasury accounts
Revenue finance
Venture debt
A ledger to pull it together
Investor connections
A debt financing marketplace.
World-class UX
How SMB-focussed banks can compete
The risks of B2B Fintech
B2B Fintech is here to stay. How will you adapt anon?
1. Never let a good crisis go to waste: How the B2B Fintech won market share.
Since the banking crisis, B2B Fintech started to do everything SVB used to, like venture debt, revenue finance, and extending runway. SVB and First Republic were specialists for this market.
And what they're building is better than the banks they're replacing.
Most banks offer less deposit insurance, a lower yield with a worse UX.
Today's finance team is often only a handful of people, even for multi-billion dollar companies. It might be one person in Series A and 2 up until Series B. This is only possible if their finance ops are automated by B2B Fintech companies.
But throughout 2023, these companies have grown to offer everything SVB did and then some.
But let's step back to the crisis.
Growth companies historically relied on SVB for expense management and venture debt in a world where the big banks wouldn't serve them and the smaller banks offered products that didn't fit their needs.
I spoke to countless founders who spent the weekend trying to log in to the SVB online portal in terror. It would wipe out their entire venture funding if the bank went under. That would mean layoffs, bankruptcy, and possibly more.
That's as existential as it gets.
Most got their money out.
And where it went is more interesting.
They already used these companies for expense management, finance ops, and employee credit cards, so moving the funds there was a logical step.
Worried about deposits above the $250,000 FDIC limit? Most of these companies offer ~$10m in FDIC insurance.
Need expense management fit for enterprises despite having low revenue? These companies offer expense cards that work like magic.
Need to manage finance ops at scale with a small team? Manage invoices, payments, and approvals from your banking dashboard.
Want to buy money market funds and treasuries? Buy it right in the same dashboard you do your everyday banking.
Need venture debt funding from someone who gets your business? Get it from your online provider in a 100% digital process.
Before the banking crisis, nobody paid attention to the amount of FDIC insurance coverage a bank had.
Now they do.
Brex, Mercury, Arc, and others added this capability within days of the crisis on tech platforms and user experiences that make banks feel like relics.
2. Recap: Life before SVB exploded.
Silicon Valley Bank was a master at understanding the complex needs of startups and finding ways to make things work.
But they also banked many of the VCs. The VCs would send Fintech companies to SVB, which would then solve the unique challenges that growth companies face.
For example, if you were a Fintech company building fleet cards and had a complex flow of funds, SVB's relationship managers and risk team would go the extra mile to determine how to get your proposition to comply.
As a master of relationships, SVB had deep investor connections and would run events to help founders meet investors and secure that crucial next round.
When every other bank wouldn't offer expense cards, SVB did.
All of this hand-holding is expensive and manual.
A good metaphor for SVB is the swan. Graceful on the surface. Hard work and peddling under the surface to make anything move.
The way SVB always made money was through its venture debt. A growth company would park its giant funding round of $100m at SVB and get a complex venture debt or convertible note.
When that company went public, the loan notes would convert, and SVB would win big.
Throughout the entire 2010s, SVB was the stock that just kept crushing.
That might have continued for a good while if it hadn't exploded.
The B2B Fintech companies were looming, but often as partners with SVB rather than direct competitors.
But they pulled forward 5 years of growth in 5 weeks when the crisis happened.
Today, many VCs send their portfolio companies directly to B2B Fintech companies.
3. What are these B2B Fintech companies?
A collection of licenses, products, partnerships, and a ledger.
They are not banks.
They're integration, UX, and compliance specialists who've partnered with banks, brokers, and other Fintech companies to build a more comprehensive suite of products than most banks could offer.
In a single dashboard and single UX growth companies have everything they need.
Mercury, for example, holds deposits and debit cards with partner banks (Choice Financial and Evolve); Patriot Bank issues credit cards. Mercury is also an SEC-registered investment advisor, allowing it to offer a high-yield treasury account.
B2B Fintech companies also use MTL (Money Transmission Licences), allowing them to instruct payments on behalf of their clients.
It's helpful to build them up product by product.
a) Deposits with "up to $5m or $10m" FDIC. This service has existed for decades but was rarely advertised. It sweeps excess funds (above $250,000) from the primary partner bank (e.g., Choice Financial) to multiple others. This deposit capability is built as a UI by the B2B Fintech while the deposits sit in an underlying bank partner.
b) Payment and invoice automation. Automate recurring payments, accounts payable, accounting integration, managing permissions, and remove all the busy work from finance teams. This enables a team of 3 to do the job of a team of 10 in a traditional company. The B2B Fintech builds the automation and workflow, while a bank partner facilitates the movement of funds with payment networks like ACH.
c) Expense management that works. It's crazy how bad expense management was before Brex and its competitors arrived. If you've never used Concur expense management, I envy you. Today, employees can get a virtual debit or credit card, with incredible controls for the finance teams and approvals that route via Slack. The portal works, and users adore the product. This is now a table-stakes offering. Partner banks power the debit and credit cards, but the magic of expenses that just work is built by the B2B Fintech company.
d) Treasuries and high-yield accounts. Since interest rates have risen, deposit rates at major banks have not followed. Companies like Arc and Mercury (as well as specialists like Meow) offer access to Treasuries, giving up to 5.4% yield.
This is usually done through partnerships with Atomic Invest or Jiko Fintech companies that make brokerage services available via APIs (BaaS for securities and alternative investment products). Both have expanded rapidly as interest rates have risen and companies seek safer, high-yield alternatives for their deposits.
e) Revenue finance. What once would have been invoice finance is now "revenue finance." A growth company connects sales, accounting, and existing bank accounts to access funding "within hours." This data helps automate much of the underwriting process. Some specialists like Capchase do just this, but its also one of many products offered by the B2B Fintech companies that are SVB in all but name.
Under the hood, lending is a little more complex. The B2B Fintech companies will secure a finance line from larger lenders (e.g., Private Credit funds like Apollo or banks like Goldman Sachs). Ramp has a great overview of how that process works here.
f) Venture debt. B2B Fintech companies lend (often as convertible loan notes) much like a late-stage VC, PE, or bank might. Typically, if the loan is paid in full, there is little to no dilution, but if the loan is not fully repaid, the loan converts to equity. Where B2B Fintech differs is the UX, like uploading financials and cap tables for a quick eligibility check before entering full due diligence. Borrowers are then assigned a relationship manager.
Like revenue finance, venture debt relies on maintaining a stable funding source and developing the skill to manage underwriting risk. It gets more complex in the relationship overhead and management level that comes with it. If you look on LinkedIn, you'll notice a lot of talent flight from SVB to Brex, Mercury Arc, et al.
g) A ledger over the top to make sense of it all. At the most elemental, financial products are about mapping a flow of funds. Put another way, money or assets move in or out, and those assets need to be recorded on a ledger.
A B2B Fintech might rely on 3rd parties (like Stripe or BaaS providers) to manage this ledger initially, but as they add more products and become more complex, they need to build a single view of the truth. Ledgers should be a simple list of balances against payments like a database, but the reality is that data needs to sync (reconcile) with every partner, bank, and 3rd party.
This is where the seemingly simple becomes complex. While some companies build their own ledger (like Nubank or Monzo*), B2B Fintech companies rely on specialists like Fragment to simplify the effort.
h) Investor connections. One of the killer features of SVB was its ability to help startups get a foot in the door with investors. These more soft and relationship-driven capabilities have always seemed like a home-court advantage for the banks, but that's no longer true. Arc and Mercury are proactive on this front.
i) And now a debt financing marketplace. Arc recently announced a debt marketplace allowing companies to apply for up to $250m of financing from a network of lenders within five days. Arc pre-packages the company financials and makes a match against lenders based on what they’re pre-qualified for. This can save months of effort and $1000s in fees. This type of marketplace always existed for old-school lenders and big private credit firms like Apollo, but making this digital and bringing it to tech companies is a step change. Fintech is moving right up the complexity curve and financing the food chain.
j) World-class user experience. Bankers so often look at the financial product and miss how much the detail matters in the experience. If you’ve never used one of the modern B2B platforms, you’ll have no idea how night and day the experience is. It’s easy to write off as “nice look and feel,” but the consequence is finance teams that used to need 30 people can now be a team of 3. (Read that line again).
4. SMB-focused banks need a new approach.
If you're a regional or community bank whose bread and butter was SMB, perhaps you've not felt this threat yet, as in the consumer P+L.
But what happens 10 years from now?
All physical businesses are slowly going digital; as they do, they're generationally shifting providers. We know that banks have either gone out of business over the past two decades or been forced into M&A to survive.
B2B was always the bit of banking that was stable and profitable. I like to call it the profitable gooey center of a bank. Sticky deposits, profitable customers, and often a low service need.
In the broader context, most banks see deposit flight and are reacting by raising the yield they pay depositors. Borrowers have more choices from lenders who are more specialized and offer a better UX.
And these new B2B lenders (currently) have a willing supply of private credit.
If you can't beat them, join them?
I doubt any bank will ever build UX that competes with Fintech companies. It's just not what they're great at. That's ok. That's not an insult; plenty of physical-based companies still need a better experience from their community bank.
But what we have seen is two things.
A move towards becoming a sponsor bank as a new source of revenue or a way to distribute lending.
Banks lending directly to the Fintech companies to compete with private credit.
5. The risks
a) B2B Fintech relies on sponsor banks under enormous pressure from regulators. Since the first half of 2022, formal enforcement actions by regulators are up across the US banking sector; however, this is much more pronounced with partner banks. The promise of partner banking wasn't always matched with investment in risk and compliance. That is changing. Partner banks are getting their act together (and many already did). But partner banking is an entirely new go-to-market and risk model.
But the takeaway is don't do this lightly. It will take investment, new partnerships, and new capabilities to do it well.
(Image via Klaros Partners)
b) We haven't seen what happens when a B2B Fintech implodes. This history of Fintech is littered with lenders who receive tech company valuations only to reset back to being lenders again. If interest rates force credit conditions to get tighter, will we see some lenders have to shut their doors or look for someone to acquire them?
Where next?
B2B Fintech companies have positioned themselves as the finance dashboard for growth companies. All products, one platform.
What happens when they're the finance dashboard for everyone else?
ST.
4 Fintech Companies 💸
1. Fragile - Embedded Asset Leasing for consumers
Fragile is a service that allows merchants to "one-click lease" an expensive item (e.g., a laptop). Merchants can position the offer as a subscription to consumers and receive funding from Fragile for the item. Fragile manages risks like consumers not paying a fee paid by the merchant. The merchant gets a cash flow without the risk of managing the consumer.
🧠 A glow-up for layaway or a novel innovation? I think of this as lease-now pay later. The merchant is receiving the funding against an asset they continue to own (unlike BNPL, where the consumer becomes the legal owner). The security of the asset used to unlock the sale for the merchant is an interesting twist. The merchant gets paid upfront while investors take on the risk of the consumer. In return, they get cash flow on a secured asset. Leases for things like cars have existed for decades, but leases for everything else with one click? That's neat.
2. Coba - The US Bank account for LATAM workers
Coba is a Neobank that lets international workers get paid in dollars but live in Pesos. Workers can open a US bank account from their home country and deposit, get paid, or save directly in the Coba app. The service has a virtual US debit card for online purchases and a physical debit card for local transactions.
🧠 This is especially valuable in hyper-inflation markets like Argentina. Getting paid and managing FX risk is complex, and the fees can be staggering. The US virtual card is neat, helping to avoid the penalty of using local cards with international merchants. I do worry about this intentional arbitrating of bank accounts. While everything here is perfectly legal and good for consumers, you must imagine the underlying bank controls aren't designed for this use case. (It's also built on Synapse, which hasn't been short on drama lately).
3. Acctual - Modern Treasury for Crypto
Acctual allows DAOs or any business transacting in Stablecoins or Crypto to manage vendor payments just as they would in the existing banking world. The service includes invoice upload, approval routing, and reconciliation against ledgers.
🧠 There are plenty of large Crypto projects with the same issues all finance teams have but not the tools. Paying the wrong wallet address is far too easy, and the back office experience is manual.
4. Obvious Money - The USD account for global citizens
Obvious allows consumers to open a USD bank account in 3 minutes and earn up to 5.5% yield. The service charges 1.5% to remit to a local bank account but is zero fee for P2P transfers. ACH transfers cost $1, and FedWire is between $10 and $30.
🧠 There's no shortage of "global USD accounts," so why this? 🤷♂️ What's interesting is this is self custodial. I wonder if that will become a trend?
Things to know 👀
As a former banker who worked with digital assets, the Bitcoin ETF matters. Ex-colleagues across big banks I used to work with agree. Why? The ETF approvals mean that any pension fund or retail investor can buy Bitcoin without opening a Crypto wallet or touching the underlying asset.
🧠 The ETF is a true watershed moment for banks internally. I spoke to senior leaders at several bulge bracket banks on Monday at the Palace of Westminster, and they all said the internal bank reaction is huge. This is a moment of legitimacy for the asset class. It means more banks will touch Bitcoin, and more of them will realize Tokenization is a powerful tech upgrade.
🧠 A reversal of fortunes for digital finance. The future of finance will be tokenized. All asset classes will become tokens, from cash to securities and commodities. We're building a new infrastructure for capital markets and cross-border payments. That's game-changing for Fintech.
🧠 Ignore the price speculation. There's nothing that generates clicks like a Bitcoin price prediction and nothing quite as infuriating as someone who's a fan of the technology.
🧠 The hate is misguided. Crypto doesn't help itself with high-profile scams and hacks, but so much of this happens out in the open. Whereas in financial services, when $2bn is laundered by Mexican cartels through a bank or oligarchs are hiding money in Panama, we seem to quickly forget. Wherever there's money, bad things happen. Crypto can and needs to improve, but it's not the asset's fault.
🧠 Ethereum could be next up for an ETF. The second largest asset is quietly used by major institutions, and regulators have experimented with it. With JP Morgan and the Singapore monetary authority, Project Guardian proved that fully regulated institutions can use stablecoins. The Bank of International Settlements has also experimented with Uniswap, like automated market making. "Decentralization" is taken much more seriously by serious people than you might expect if you just watch the news.
🧠 What about other assets? The UK has launched its digital securities sandbox. This means you could build an entirely tokenized securities offering under the regulator's spotlight in the world's second-largest capital market. London.
🧠 Tokenization makes assets programmable, global, and open-loop. For example, Stablecoins are far more efficient than traditional settlement systems for cross-border payments and complex transactions. Why? Because they're programmable, global, open loop, and instant. Name another payment rail that's true for.
🧠 This has been a long time coming. By the time something happens, it's boring. But this is huge for everyone who has worked to clean up Crypto and build a better financial market infrastructure. The lawyers, the bankers, the lobby groups, and the startups, all of you, well done.
Carta, the cap table management platform and "private stock market for software companies," has stirred controversy over the use of company data. An investor alerted a Finnish CEO they had been contacted to buy shares in a company (Linear) despite Carta having opted in permission to sell. The CEO apologized to social media, blamed a rogue employee, and isolated the incident. Since then, others have noted the same thing happened to them.
🧠 Trust takes a long time to build and seconds to lose. The big winner in the short term is Angelist, who's now offering incentives to switch and managing a spike in new customers. Carta says it is shutting down its CartaX (liquidity) business, but the reputation damage is done.
🧠 Closing CartaX isn't a big loss of revenue, but the trust loss is massive. The liquidity business did just $3m vs the core business of cap table management at $250m and fund admin at $100m. But the Trust might be gone. Their best hedge is the inertia of existing clients and high switching costs.
🧠 This shouldn't have been possible in the first place. CartaX has a separate management team and should be firewalled from Carta data. This is why banks have so many processes on top of the processes to try and prevent these things. Trust loss in financial services is a killer blow.
Good Reads 📚
Corporate and Investment Banks generated $2.9trn of revenue with RoE of 12% in 2022. Banks are on solid footing a decade and a half from the financial crisis, but performance isn't even. The five big shifts are:
Macro and political instability.
Generative AI and technology.
New regulations like "Basel Endgame."
New market structures with private credit coming to dominate.
Changing clients need to transition to net zero and meet pension fund obligations.
🧠 This is the most profitable high ground for banks and is now under threat. Private credit funds can perform much of the lending, and money market funds are beginning to compete seriously for deposits. I also believe Fintech companies will increasingly own distribution traditional "corporate banking" client bases over the next 5 years. Everything from B2B Fintech companies to platforms like Modern Treasury becomes the dashboard for corporate finance teams, not the bank.
🧠 Most CIB value is coming from cost-cutting, not tech investment. McKinsey talks about a "digitally enabled front office" and using GenAI to summarize calls or create email drafts. That's a tad uninspired. To be fair, they also suggest launching an "attacker" CIB brand (which Citi* has already done in its trade and working capital business). This has some value in select products, but I'd focus much harder on partnerships like the one Citi just did with Traydstream.
🧠 If you can't beat them, join them. Seeing JP Morgan and others launching private credit desks doesn't surprise me. Basel Endgame makes balance sheet lending not an option for much of the market demand.
That's all, folks. 👋
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(1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees.
(2) All companies or assets the author mentions in which the author has a personal and/or financial interest are denoted with a *. None of the above constitutes investment advice, and you should seek independent advice before making any investment decisions.
(3) Any companies mentioned are top of mind and used for illustrative purposes only.
(4) A team of researchers has not rigorously fact-checked this. Please don't take it as gospel—strong opinions weakly held
(5) Citations may be missing, and I've done my best to cite, but I will always aim to update and correct the live version where possible. If I cited you and got the referencing wrong, please reach out.d and learning as I go; please don't take it as gospel—strong opinions, weakly held.