As the world of banking becomes more competitive, we are seeing an increasing number of startups withdrawing their money from Silicon Valley Bank too look for a new home. This has been a significant trend in recent years, and it has benefited rival banks in many ways.
One of the significant benefits that other banks have enjoyed from startups withdrawing their money from Silicon Valley Bank is increased revenue. As these startups move their money to other institutions like JPMorgan, Barclays, and Wells Fargo, these banks are making more money by charging interest on loans and other financial products.
Moreover, many traditional banks have offered startups enticing services, including faster processing times and customized financing for their unique needs. For instance, First Republic Bank offers startups a ‘venture credit line’ as a banking product that provides much-needed flexibility, allowing them to borrow and repay as needed.
This has created competition among different banks, each trying to attract startups with various services, such as no-fee accounts or customer-centric digital experiences. As startups change their banking provider, their previous provider’s competitors have a chance to woo them with better offers, leading to stronger competition for customers in the market.
Startups need a bank that can help them with their unique needs, such as exposing them to potential investors or providing financial advice—something many traditional banks are now stepping up their game to do. New York-based DigitalOcean, for example, signed up with Barclays earlier this year, citing “strong support in the form of workshops and resources.”
Also, as startups mature, they often expand beyond the United States, requiring banking partners that have a global presence. Silicon Valley Bank is primarily a US-focused institution, which could lead startups to switch to banks with a different foothold in foreign countries.
Another reason some startups may choose to move their banking elsewhere is due to long waiting periods to open a new account. Some startups could be waiting for several weeks, which makes the transition to a new bank and getting financial products such as loans almost impossible. Meanwhile, other banks like Chase have vastly improved their digital account-opening capabilities, allowing startups to get their hands on the funds they need substantially faster.
Start-ups have been one of Silicon Valley Bank’s key customer segments, and losing this group of customers may leave a significant hole in the bank’s resources deemed necessary to help venture capital-backed and emerging technology firms. The appeal of serving this group is easy to understand; early-stage companies have relatively unpredictable cash flows and unique banking needs, from wire transfers to managing large numbers of credit cards. Plus, once they grow and become a larger, more established company, they tend to provide significant ongoing business.
In conclusion, SVB’s rivals, particularly traditional banks, have benefited significantly from startups withdrawing their money to look for a new home. The result of this trend is that rival banks are now offering better services to attract startups, ranging from faster processing times to unique financing options that appeal specifically to emerging tech companies. As a result, a significant amount of competition has developed in the market of banking servicing for startups, intensifying the rivalry and driving innovation while generating increased revenues for the banking sector. This, in turn, has benefits for the startups themselves as they get better and more targeted banking services that suit their needs at different stages of their growth.