Mercury and Brex acquired thousands of ex-SVB clients. Will they stay?

Neobanks acted fast to bring on thousands of new accounts following Silicon Valley Bank’s failure on March 10. Now, they’re expanding products and features to show acquired clients that they can be more than just pit stops for funds.

SVB clients, largely startups and tech companies, needed places to quickly move their money during the run on and failure of the bank two weeks ago. Fintechs that serve tech startups, like Brex and Mercury, grabbed a chunk of that business by offering speedy sign-ups and deposit protection above the Federal Deposit Insurance Corp. limit of $250,000.

As the dust settles, customers may become choosier about where they build their banking relationships. 

Ron Shevlin, chief research officer at Cornerstone Advisors, said that fintechs will keep some of the business they bring in, but users will still shop around for the best services or terms.

“What [neobanks] have to do, just like what any bank is going to have to do, is demonstrate that they’ve got quality services that are specific to technology companies and startups,” Shevlin said. “Brex and Mercury and others have been focusing on this market for a while now, so they’ve built up these competencies. It’s just a matter of demonstrating that they can deliver on whatever promises they’ve been making in the short term to capture customers.”

Brex and Mercury executives said they haven’t changed their business models, they’re just seeing more business. In the week following the bank failure, Brex added 4,000 accounts. Mercury has added thousands of accounts to its existing 100,000-customer base. The fintechs offer services like business accounts, corporate credit cards and venture debt for startups.

Founder and Co-CEO Henrique Dubugras and Mercury Co-founder and CEO Immad Akhund both said they’ve seen more startups and VC funds prioritizing deposit security.

Both Brex and Mercury have increased the amount of deposits they can protect per customer. Though the FDIC only insures deposits up to $250,000 per user, fintechs partner with banks that use sweep programs to spread funds across several financial institutions.

Brex has increased its deposit insurance from $1 million to $6 million since SVB’s failure, storing funds above that limit in a Bank of New York Mellon money market fund.

Mercury’s Akhund said the fintech’s clients, which are primarily early-stage startups, had previously been satisfied with the $1 million limit. Customers became more concerned with their funds’ security in the days following SVB’s collapse, Akhund said, especially before federal regulators announced they would protect uninsured deposits. The fintech has increased the amount of funds it can protect per customer from $1 million to $5 million in a product called Vault. Deposits exceeding $5 million are placed in a money market fund.

Vault launched March 13. In three days, Mercury created the interface for customers to see where their funds are; finalized agreements with its bank partners, Choice Financial Group in Fargo, North Dakota and Evolve Bank & Trust in Memphis, Tennessee; and trained additional employees to assist with onboarding. 

“Most of the banks in the U.S. rely on third parties to build anything, so they can’t really build things for themselves,” Akhund said. “Whereas we are continuously improving the existing experience, making it smoother, faster, automating it, but also like building cool things…We’re just making continuous improvements all the time.”

Akhund added the company’s 150-person engineering team will continue to smooth out Vault’s function, and potentially add features like educational items.

Neil Hartman, a senior partner at technology consulting firm West Monroe, said that being able to protect deposits above the FDIC limit is a “winning formula” for companies to capture business. He added it will take financial institutions that didn’t already offer startup-specific products time to build a competitive offering, while fintechs like Brex and Mercury already had services in place.

“We don’t know what’s ultimately going to happen, or if the infrastructure and capabilities that [fintechs] offer are going to meet the needs of the startups long term,” Hartman said. “How quickly [will fintechs] be able to continue to add products and services to serve this market? But it seems to be a model that some of these startups are jumping toward.”

Along with adding new clients, Dubugras said that Brex clients that had used the fintech for one product, like corporate credit cards, grew more conscious of other features they could access within the company. Dubugras said the company wants to support businesses from conception to going public. On Wednesday, Brex also announced it expanded its travel booking and payments features.

“A lot of people knew us for different products, but not the whole suite,” Dubugras said. “I think that our business account product was something that people just didn’t know that we had, and that this was a credible alternative to banks…Increasing customer control over their money has been a theme that we’ve been hearing a lot and seeing customers really value.”

Dubugras added that time will tell how many of the newly-opened Brex accounts stick and do more business with the fintech. He added the playbook around bank account management has changed, and diversification across several institutions is a larger focus.

Mercury has also seen a spike in venture capital fund users, which previously only made up about 5% of the fintech’s customers, Akhund said. VC funds have specific needs for banking, like maintaining separate accounts for different funds, investors and management companies. 

This week, the fintech expanded its products to serve VC firms with entities in the British Virgin Islands, Cayman Islands and United Arab Emirates. Previously limited to the United States, the additional geographies facilitate investments from foreign institutions and startups incorporated and operating internationally. Mercury said it worked with partner banks, regulatory counsel and, in some cases, local counsel from other jurisdictions to develop additional onboarding, transaction monitoring and marketing guidelines regarding those regions.

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