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What’s in store for fintech after the collapse of its two biggest banks?

November 27, 2023


It’s been just eight months since the largest supporter of tech startup funding, Silicon Valley Bank (SVB) collapsed, triggering the fall of crypto’s preferred institution, Signature Bank. In an industry plagued by inflation, mass layoffs, and recessionary conditions, what is the future of the fintech industry going into 2024? 

Experts have taken stock of the economic downturn, but remain cautiously optimistic about the industry’s ability to rally going into 2024. Without the presence of SVB and Signature, fintech will need to appeal to traditional banks, pivot where possible, and find a safe harbor within strategic partnerships. 

The significance of Silicon Valley and Signature Banks for Fintech

In its hey-day, SVB was the 16th largest bank in the United States, while Signature held the 19th place. Pre-2008, this alone would’ve been enough to lend a strong dose of confidence to the longevity of the banks, even when one factors in the niche sector that SVB operated in. Closed within days of each other, the end of SVB and Signature Bank represent the second and third-largest banking failures in U.S. history. Of greater concern is what this means for the fintech and cryptocurrency industries that relied on them. 

As a financial services provider, SVB was the first port of call for early-stage startups, not only willing to take the risk of extending securities lending to startups, but doing so in a way that allowed for these businesses to thrive, offering competitive repayment terms and interest rates. The loss of these facilities, relevant to the industry, is intangible. Founders are bogged down by post-pandemic recessionary conditions, with high levels of inflation making loan repayments an already tricky exercise and requiring iron-clad resolve to survive. The loss of SVB means founders are walking a tightrope above chummed waters. It’s much the same for crypto companies who relied on Signature’s progressive outlook on the industry. 

The bank run that led to the collapse of both banks in March has left investors, shareholders, clients, and the government reeling from deja vu; the collapse of Wall Street. Unlike in 2008, the Federal Reserve Bank decided not to bail the banks out, but to honor customer deposits through insurance provided by the Federal Deposit Insurance Corporation (FDIC). The FDIC insurance has provided much-needed liquidity to startups that rely on the funds in their SVB accounts for day-to-day operations like payroll and expenses. While this is a relief to most, the FDIC has an insurance ceiling of $250,000, leaving those with higher deposits exposed to massive loss. SVB counted Etsy, gaming giant Roblox, and streaming site Roku TV as clients with deposits into the tens of millions.

The closure of both banks heralded a change in the ecosystem, and experts agree that change is not always necessarily a bad thing. 

Fintech in the Future

It’s no secret that dealmaking in the fintech industry has grown cold since the start of 2023. In the first quarter of the year, acquisitions and buyouts totaled $4 billion; to put the figure into perspective, the year-on-year analysis indicates a 56% drop, while quarter-on-quarter, the records show a 69% decline. 

Despite this funding winter, industry experts still believe that fintech startups could see better days heading into 2024. “Difficult times create resilient businesses” is the outlook experts are choosing. The fintech industry has run on optimism for a while, luring VCs and investors to back companies in the hope that they’re the next unicorn. Valuations have been inflated, spending has been reckless, and talent has not matched the industry’s needs in order to successfully engender the promises made to consumers and investors alike. Market realities will force a shift in the sector, but one that is not impossible for businesses to survive. 

Without the benefit of the specialized banking and lending facilities offered by SVB and Signature, fintech startups will have to appeal to institutional banks. Analysts suggest that a few key returns to traditional business models and practices can help startups long-term. Experts agree that businesses that are able to differentiate themselves in the marketplace, capitalize on a compelling product and origin story, and hone in on a clear market segment are likely to survive. They’ve also put a positive spin on market adjustments, forecasting growth in the area of innovation as startups will need to pivot to survive. In this regard, Artificial Intelligence has been the gift that keeps on giving, providing founders with enough grit and hustle, the opportunity to seek out new customer pain points, and solve them quickly through generative AI. 

In the face of dwindling funds for mergers and acquisitions, a stagnant IPO market, and overall recessionary conditions, strategic partnerships emerge as a fail-safe for founders. This allows legacy institutions to offer competitive products and services to their customers, while providing startups with the security of their reputation and resources. Lloyds Bank has expressed their interest in partnering with FinTech firms, while French bank and telecommunications giant Orange Bank announced their partnership with Mambu, a cloud banking platform. 

Overall, speculation for the sustainability of fintech startups is cautiously optimistic, provided founders can do what they do best: get innovative and spot the opportunities amid the obstacles.

Trends in fintech to look out for in 2024

Going into 2024, we expect to see an increase in the regulation of the fintech industry from the Securities and Exchange Commission (SEC). This won’t come as a surprise after the collapse of FTX and the several charges of fraud, embezzlement, and criminal conspiracy its founder, Sam Bankman-Fried was convicted of. 

In remaining cautiously optimistic, pundits believe that further regulation may not be the worst outcome for crypto companies, as this pushes the sector toward crypto institutionalization. This may well be the start of creating stability in the industry. And with a bitcoin halving event coming in early 2024, the historical data suggests that cryptocurrencies should rally against the market. 

For companies focused on payments, the landscape in 2024 is also looking encouraging! Central bank digital currencies (CBDCs) are increasingly investing in the creation of digital currencies tied to the country’s fiat currency. In essence, there’s a move toward creating stablecoins or government-backed cryptocurrencies. The benefit for the payments sector exists in the ability of CBDCs to provide an oversight function while improving security. According to the Bank for International Settlements (BIS) CBDCs will have a profound effect on cross-border payments, and the startups that have worked to facilitate fast payments may have real opportunities to collaborate with governments. 

Fintech startups and founders will have to navigate a frigid economic landscape without any of the warmth SVB and Signature provided. Founders are asked once again to showcase their grit and agility, and pivot where possible. The opportunities exist for fintech and cryptocurrency companies to partner with larger institutions, as well as redefine their offering and target audience. 2024 holds a lot of promise for those who can hold their nerve; the bitcoin halving event should offer some relief for crypto startups, and the introduction of new regulation will add a layer of protection and stability for both fintech startups, investors, and their consumers.