NEW YORK, N.Y. — The failure of Silicon Valley Bank has set in motion a domino line of bank failures whose end is still uncertain.
If some are to be believed, it may be over already. Regardless, the crisis has brought issues to light and sparked debates stretching into the foreseeable future.
On Day One of Fintech Nexus USA 2023, Renaud Laplanche, CEO and Co-Founder of Upgrade, spoke about why being a fintech had allowed them to navigate the environment effectively.
“We’ve had some new reminders in the last few months of what it means to be the bank and the inherent risks,” said Laplanche. “We have a lot of people thinking about how to manage asset-liability mismatch, and SVB and First Republic is a useful reminder of the risks.”
A freedom to operate
According to Laplanche, within this context, being a fintech had allowed Upgrade to navigate the macroeconomic conditions.
“The way we reconcile the issues and regulatory drama surrounding the mismatch of assets and liabilities and, on the other side, deposits, in a technical and efficient way, is we created a network of 200 small banks and credit unions.”
“Instead of trying to match assets and liabilities within the balance sheet, we created this network of banks and credit unions. We have bilateral agreements whereby we raise deposits online that we have the suite deposited overnight to go back and alter the day-to-day and use the deposits to buy from us. So we get the same benefits, raising deposits and forming loans.”
“This really works well as it’s well diversified.”
He explained that it had allowed the company to function similarly to a bank, without the added cost and with the freedom to operate the technical requirements necessary.
Creating benefits for small banks
While this had diversified their risk, it had also provided significant incentives to the network itself.
“One of the functions that we’re performing for small banks and community banks is giving them access to all the advantages generated by a national base of depositors.”
“I think it’s been hard for smaller banks and smaller credit unions since COVID and harder since SVB to raise deposits from a small footprint and a small customer base locally. We can outsource that function, and we benefit from a national brand identity to register for the online really to funnel to more banks and credit unions.”
He explained that this had become particularly important for small banks and credit unions within the current environment. In late 2022, Upgrade launched a high-rate savings account in an increasingly competitive market. Laplanche explained the account had been a powerful product within their network of small banks, as it gave their partnering banks increased access to the deposit market where perhaps they would not have been able to.
“Once you have set up and the ability to access these resources online, it becomes very efficient,” he said, highlighting the digitally native setting of the business has allowed them to produce the product profitably.
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