Embedded Finance News - SVB & Risk Management, BaaS Revenue Growth: The Takeaway
Every first Tuesday of the month we compile some of the most important and interesting fintech and embedded finance news stories and tell you why they matter. Find last month’s issue of The Takeaway here.
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Silicon Valley Bank fails, First Citizens purchases deposits & loans
On March 10, Silicon Valley Bank failed after customers withdrew $42 billion in a single day, which left the bank with a $1 billion negative cash balance. The SVB failure marks the biggest bank failure since the 2008 Great Recession.
According to the New York Times, the failure stemmed from poor risk management coupled with a slowdown in venture capital. CNN Business suggests the bank run was at least partly fueled by Twitter hysteria, where several prominent venture capitalists were raising the alarm.
Two weeks after the failure, North Carolina-based First Citizens BancShares announced it would purchase $72 billion of SVB’s deposits and loans.
The Takeaway: Financial risk management and compliance counts
That old adage – never have all your eggs in one basket – has never felt more prescient. Risk management and compliance should be top of mind, especially now. Tools such as deposit sweeps can be useful, by automatically transferring funds out of one account to another when the balance is above a preset amount.
For example, Treasury Prime's new deposit sweeps product, offered in collaboration with bank partners, allows you to distribute funds across a vast deposit network, extending FDIC insurance coverage from $250,000 to tens of millions of dollars. Plus, our interconnected multi-bank product, OneKey Banking, enables instant cross bank transfers within our banking network to establish redundancy and protect your funds. Together, these tools provide ways to protect customer deposits and mitigate concentration risk.
Watch our on-demand Enhanced FDIC Webinar for tips on protecting your money.
A2A payments gaining traction in 2022
The Worldpay from FIS Global Payments report 2023 found that account-to-account (A2A) payments are continuing to grow. As the term suggests, A2A payments are electronic money transfers from one bank account to another.
In 2022, A2A payments increased 13% to $525 billion in global e-commerce transaction volume and have become increasingly popular in consumer-to-business transactions. The research also shows that A2A payments have B2B and P2P use cases.
The appeal to both consumers and businesses is simple. According to Jim Johnson, president of Worldpay Merchant Solutions, “A2A payments can reduce the cost of payment acceptance in comparison to cards, while offering the instant settlement of funds and boosting their cash flow.” Some merchants are even offering incentives to consumers to use A2A payments, which is likely contributing to its gaining popularity.
The Takeaway: A2A payments are part of growing global payments trend
A2A payments are a component of the larger, growing global payments trend that was spurred by the onset of the pandemic in 2020. Globally, digital wallets remain at the top, comprising 49% of e-commerce transaction value. The competition in that space is heating up, with banks, fintechs, and Big Tech all competing as providers.
As customers become more accustomed to the convenience of digital payments and mobile wallets, it’s increasingly important for companies to at least meet those expectations. Embedded finance can help you make that sale, retain that customer, and help you weather even the worst economic downturns.
Research says 25% of bankers believe BaaS is integral to revenue growth
According to PYMNTS research, 25% of bankers say that banking-as-a-service solutions are integral to growing revenue. However, only 7% actually provide those services and 4% are currently in the process of implementing a BaaS strategy.
Additionally, PYMNTS found that the BaaS industry is growing by 26% annually, 13% of bank executives are considering launching BaaS services soon, and 32% are looking at how BaaS can improve daily operations.
The Takeaway: BaaS strategies are gaining attention as revenue driver
The PYMNTS report found that 81% of “companies pay their enterprise counterparties with checks.” It also found that 80% of U.S. and U.K. businesses have challenges in paying and managing overseas workers. BaaS can not only streamline these issues, but it can provide non-financial companies room to grow by potentially offering financial products to their customers and users.
Grasshopper Bank relies on fintech partnerships during economic downturn
Grasshopper Bank announced that revenue grew by 239% in 2022 to over $17 million. Grasshopper CEO Mike Butler attributed that growth to the bank’s strategic fintech partners, which includes Treasury Prime. The bank also grew its loans by 262% and deposits by 124%.
In January 2022, Grasshopper Bank began a technology overhaul to focus on fintech partnerships. Through its partnerships with Treasury Prime and FIS (Fidelity National Information Services), the bank also became the first financial institution to build out a BaaS and corporate API banking platform using FIS’ embedded finance solutions.
The Takeaway: Bank fintech partnerships can make a difference
Despite the (understandable) concerns that arose from the Silicon Valley Bank failure, not all banks are on the verge of failure. In fact, some are even thriving, especially if they’ve leveraged strategic and compliant fintech partners for their growth strategies.
As Butler corroborates, fintech partnerships can help banks more directly meet the needs of their small and mid-sized business clients. Although larger financial institutions may be able to tackle digital transformation on their own, smaller operations can compete by working with fintechs to meet and exceed customer expectations.
Hindenburg Research claims Block Inc. has facilitated fraud against consumers
Short seller Hindenburg Research released a long report that claims that Block Inc. (formerly known as Square) facilitated fraud against consumers and the government through its Cash App. The purported two-year investigation allegedly discovered that Block had loose risk management controls that allowed “criminals” to create accounts for scams, as well as inflated the number of Cash App users.
In response, Block stated in a press release that they intend to explore legal action against Hindenburg’s “factually inaccurate and misleading report.”
The Takeaway: Financial compliance is vital to embedded finance ventures
The theme for March is, without a doubt, compliance and risk management. Whether you agree with the report or not, it highlighted the lengths people will go to commit fraud and the importance of constantly adapting to stay on top of it all.
Financial compliance is more than just a checkbox; it’s a vital component of running a successful embedded banking business. Whether you’re a fintech or a company embedding financial products into your platform, partnering with a regulated financial institution is a necessity. With regulation comes the need for a thorough and well thought out compliance program. Our latest webinar, “Creating a Culture of Compliance for Company Success” gave top compliance insights from several different perspectives, including those of a fintech, bank, and modern compliance tool partners. Here are the top insights.
Wondering how embedded banking could help your business? Contact Treasury Prime — we have a true multi-bank network, the deepest bank core integrations, and extensive compliance experience. Read more about our $40 million Series C Funding and why Tearsheet named us the Best Banking as a Service company for the second year in a row. Talk to the best embedded finance team in the industry.