How the Bank Crisis Has Changed How FinTechs Raise Money

Amid the uncertainty caused by recent bank failures, businesses that seek to raise money need to show they have strong fundamentals, a clear understanding of their market and a solid plan for profitability, says Treasury Prime CEO Chris Dean.

As we enter the second quarter of 2023, business leaders are grappling with uncertainty and confusion about the economy. The recent bank runs, at institutions including Silicon Valley Bank and First Republic, are a reflection of this instability. While volatility in the banking sector is not uncommon, the fact that this is happening at such a significant scale is causing some concern about banking confidence. A poll conducted by the Associated Press following SVB’s collapse found that nearly one third of Americans have “hardly any” confidence in the nation’s banking institutions.

The big question is what’s going to happen next, and where will the innovation for payments come from? Historically, startups have been at the forefront of this innovation, but these businesses are often volatile and unpredictable clients, making them challenging for banks to work with. As a result, it is unclear who will power innovation moving forward.

For most organizations, the next several months will likely be a period of focusing on the fundamentals of their business, ensuring that existing clients are satisfied and solving real problems for real people. While this is a healthy and necessary approach, it may mean that there will not be the same level of growth that we have seen in recent years.

Capital environments are also very different compared to where they were even just two years ago. Businesses can no longer afford to try big experiments and hope for the best, knowing that they can raise more money tomorrow. If a company is not profitable, it needs to show that it has strong fundamentals and growth signals, such as revenue growth, margins and unit economics.

In the past, growth was all that mattered, but now unit economics and margins are being scrutinized by investors, boards of directors, Wall Street and the C-suite much more closely. Companies that need to raise money will have to demonstrate a clear understanding of their market and a solid plan for profitability. Investors will be looking for signals that a company has a solid understanding of their business and has a plan to sustainably grow, rather than just focusing on growth at all costs.

As we look toward the future, it is clear that the business landscape is shifting to a focus on strong fundamentals and sustainable growth. While startups have historically been the driving force behind innovation in the payments sector, recent events have highlighted the challenges of working with these volatile and unpredictable clients. The recent bank failures and the resulting uncertainty in the economy have further emphasized the need for businesses to build solid foundations and demonstrate clear plans for profitability. At Treasury Prime, we are actively working on building cutting-edge solutions like our interconnected multibank product — OneKey Banking — to address the current challenges both banks and enterprises are facing with risk mitigation tools, seamless deposits management and compliance offerings. It is clear that the future belongs to those who can navigate these challenges and build sustainable, profitable businesses.