Ingo Money CEO on SVB’s Collapse and the Importance of Avoiding Single Points of Failure

A lot of money is moving this week, but not in a good way.

In the five days since last Wednesday (March 8), three US banks have failed partly because of customer runs on their deposit bases — two crypto-servicing institutions, Signature Bank and Silvergate Bank, and one historical pillar of the tech startup ecosystem, Silicon Valley Bank (SVB).

Talking with PYMNTS CEO Karen Webster about what he sees as the upcoming fallout of the failures, Drew Edwards, CEO at money mobility payments company Ingo Money said many companies are going to ask, “Is my bank safe?” But it’s not really about the size of the bank that matters; it’s more about the makeup and diversification of its customer base.

“[The SVB collapse] had a lot to do with their heavily concentrated customer base,” Edwards said. “And it was also a small, tight-knit community connected to each other online and communicating in channels all day long that enabled such a quick run for the door.”

A natural outcome of all this is likely a trend in which companies start thinking about splitting their business across multiple banks, no matter how strong the banks are. This can be done but will create inefficiencies unless their partners are set up to split volume across sponsor banks, which we already do in our business.”

He adds that if he had a billion dollars, he wouldn’t put it in just one place, saying, “I can’t stand single points of failure anywhere in our value chain.”

SVB’s impact may see more businesses taking the easy route and banking big

“A reallocation of deposits is likely to happen because a lot of people may make the mistake of taking the easy path, thinking, ‘Oh no, all smaller banks are bad so let’s go to a bigger bank.’ But this is not the answer and leaders should remember that in all banks, the depositors are and have always been, safe in this country. They should pick the best partners and not make broad reactive judgments around pure size,” Edwards said.

As reported by PYMNTs, the recent SVB news has already spurred investors to send shares in other banks lower, even the JPMorgan Chases (down 7%) and Citigroups of the world (down 7.7%), as investors embrace defensive positions against banking names.

The harder question, Edwards emphasized, is what the SVB collapse will hold for future innovation.

“How will the investor community react to the SVB void and what will the impact be on the next wave of innovation? Just like a recession is inevitable, and rising and falling interest rates are inevitable, some sort of reset here was inevitable. The environment we are in has changed — just like what happened in 2000 and 2008,” Edwards said, adding that the companies that can adjust will survive and continue to innovate as long as they stick to a “near-term path to profitability.”

“I’m sure somewhere in the future we’ll go back to irrational exuberance again where you can get funding for anything considered to be in a FOMO category,” he noted.

Read More: The Silicon Valley Bank Story No One Has Told

As PYMNTS previously wrote, startups — and FinTechs in particular — were navigating a different existential crisis well before SVB shuttered.

A crucial and killer part of that existential crisis was a contemporary startup ecosystem that became highly interdependent on the success of one another for each to stay in business.

Edwards said that he sees the natural reaction to the SVB news as bringing more regulation.

President Biden has already said that “those responsible” for the SVB collapse will be held accountable.

What makes this different, said Edwards, “is how fast that $42 billion flew out of the bank. I don’t know how anyone could be good enough to deal with that … this just happened on everybody’s mobile phone.”

We are in a new world that moves fast, he adds. “I do feel like SVB would still be here if they had a week to figure things out … maybe there should be some sort of red alert trigger like a governor, where everything gets slowed down, and you can’t just go dump on a bank on a whim. You can’t go to an ATM and walk out with $40 billion. You can’t even walk into a branch and walk out with that kind of money, so maybe you shouldn’t be able to draw down mass deposits that fast without some systemic rational thought first?”

As for what Edwards hopes the future might hold, given the reality of today’s failures?

“I think that fundamentals and analytics will come roaring back,” he said. “We’re moving back into the land of the normal now where the well-run companies and the ones that have good business models and good unit economics will weather this and do well.”

And there, a path for innovation and experimentation remains strong going forward, Edwards added.