4 ms·

the irony of this whole situation is VCs and startups pouncing on the chaos to encourage people to move their money into even more opaque neobanks eg Mercury/Br

by tempsy 4y ago

the irony of this whole situation is VCs and startups pouncing on the chaos to encourage people to move their money into even more opaque neobanks eg Mercury/Brex/Ramp as if they don’t have the same issues with relying on VC funded startup deposits but even worse in that their balance sheets are hidden.

Eumenes 4y ago
Agreed that these neobanks aren't a wise choice, but I still think the VCs made the right call in advising their portfolio companies - they had a literal vested interest in their success, they had to do something, this eventually was going to happen.
mrkurt 4y ago
We use Mercury, they're a frontend though. They're not a bank. Our checking/savings are with Choice Financial, and swept into at least four of these banks: https://co-mercury-prod.s3.amazonaws.com/legal/Choice+-+Deposit+Sweep+Bank+List+-+03_09_2023.pdf https://co-mercury-prod.s3.amazonaws.com/legal/Choice+-+Depo... We use their Treasury account type for most of our cash. It's split between Morgan Stanley and Vanguard funds. Now, if Mercury fails it's going to be a pain in the ass to get at the money in these backer accounts. So we keep what we need for 2 months of operations with another bank. We were using SVB for this, now we have to find a new emergency backup bank. Brex and Ramp are similar to Mercury.
- metalspot 4y ago
  also use mercury for the same reason. they are a tech company that provides a good interface to baking services at a wholesale price, which is very different than trying to be a bank. for actual banking i see know reason to use anyone other than jpm chase.
  - tempsy 4y ago
    they work with tiny regional banks that act as a white label service if one or more of those tiny regional banks fail in the same way SVB did I don’t see why there wouldn’t be an issue as a customer of Mercury it’s also unknown what percentage of these banks’ total deposits are Mercury deposits now. if it’s a lot then you have the same risk of a bank run on the Mercury side disproportionately impacting the solvency of the underlying bank
    - metalspot 4y ago
      they can fail all they want as long as you have less than 250K deposited. if you are using mercury as a transaction agent then you have no risk. you keep your deposits at a tbtf bank, then automate your transactions to run through mercury, so you pay lower transaction fees.
      - tempsy 4y ago
        that was also true of SVB
        metalspot 4y ago
        no, it was very different at SVB. SVB was loaning money to startups on the basis of exclusivity contracts where those startups were required to hold the money in SVB accounts, so they were basically paying SVB to create the illusion of having liquidity. that is a whole different game.
        tempsy 4y ago
        that is true for some customers not all and not the primary reason why it failed. and the problem is you know nothing about the financial health of the small banks that are white label providers so how can you say you’re confident in the management of these individual banks that Mercury is contracting with? you don’t know anything about them.
        metalspot 4y ago
        they are guaranteed by the FDIC up to 250K, and mercury has set up their systems to spread deposits across multiple banks, to increase the amount guaranteed. so, if mercury has a 1M FDIC guaranteed, then you can move 1M per day through their systems with 100% guarantee, but the risk that a bank fails on one particular day is very small, so maybe you can move 10M a day through them, with effectively no risk. 10M a day is 3.5B a year. very few companies are doing transactions on that level, so mercury scales up very well.
cloudking 4y ago
Mercury insures up to $1m deposits by splitting your funds across multiple banks. "Mercury checking and savings deposits are FDIC-insured up to $1M. As a broader effort, we are working on expanding all coverage up to $4M." https://mercury.com/faq https://mercury.com/faq
btown 4y ago
Brex at least mitigates by spreading deposits across multiple banks: https://www.brex.com/journal/how-business-account-works https://www.brex.com/journal/how-business-account-works . But given https://techcrunch.com/2021/02/19/brex-applies-for-bank-charter-taps-former-silicon-valley-bank-exec-as-ceo-of-brex-bank/ https://techcrunch.com/2021/02/19/brex-applies-for-bank-char... and the fact that https://www.brex.com/svb-emergency-line https://www.brex.com/svb-emergency-line emerged literally overnight... it's unclear to me whether these strategies are truly robust, or whether much of this is hype driven by Thiel and other Brex etc. investors - who are, at the very least, incentivized to capitalize on this situation.

by tempsy 4y ago

Eumenes 4y ago

Agreed that these neobanks aren't a wise choice, but I still think the VCs made the right call in advising their portfolio companies - they had a literal vested interest in their success, they had to do something, this eventually was going to happen.

mrkurt 4y ago

We use Mercury, they're a frontend though. They're not a bank. Our checking/savings are with Choice Financial, and swept into at least four of these banks: https://co-mercury-prod.s3.amazonaws.com/legal/Choice+-+Deposit+Sweep+Bank+List+-+03_09_2023.pdf https://co-mercury-prod.s3.amazonaws.com/legal/Choice+-+Depo... We use their Treasury account type for most of our cash. It's split between Morgan Stanley and Vanguard funds. Now, if Mercury fails it's going to be a pain in the ass to get at the money in these backer accounts. So we keep what we need for 2 months of operations with another bank. We were using SVB for this, now we have to find a new emergency backup bank. Brex and Ramp are similar to Mercury.

metalspot 4y ago
also use mercury for the same reason. they are a tech company that provides a good interface to baking services at a wholesale price, which is very different than trying to be a bank. for actual banking i see know reason to use anyone other than jpm chase.
- tempsy 4y ago
  they work with tiny regional banks that act as a white label service if one or more of those tiny regional banks fail in the same way SVB did I don’t see why there wouldn’t be an issue as a customer of Mercury it’s also unknown what percentage of these banks’ total deposits are Mercury deposits now. if it’s a lot then you have the same risk of a bank run on the Mercury side disproportionately impacting the solvency of the underlying bank
  - metalspot 4y ago
    they can fail all they want as long as you have less than 250K deposited. if you are using mercury as a transaction agent then you have no risk. you keep your deposits at a tbtf bank, then automate your transactions to run through mercury, so you pay lower transaction fees.
    - tempsy 4y ago
      that was also true of SVB
      - metalspot 4y ago
        no, it was very different at SVB. SVB was loaning money to startups on the basis of exclusivity contracts where those startups were required to hold the money in SVB accounts, so they were basically paying SVB to create the illusion of having liquidity. that is a whole different game.
        tempsy 4y ago
        that is true for some customers not all and not the primary reason why it failed. and the problem is you know nothing about the financial health of the small banks that are white label providers so how can you say you’re confident in the management of these individual banks that Mercury is contracting with? you don’t know anything about them.
        metalspot 4y ago
        they are guaranteed by the FDIC up to 250K, and mercury has set up their systems to spread deposits across multiple banks, to increase the amount guaranteed. so, if mercury has a 1M FDIC guaranteed, then you can move 1M per day through their systems with 100% guarantee, but the risk that a bank fails on one particular day is very small, so maybe you can move 10M a day through them, with effectively no risk. 10M a day is 3.5B a year. very few companies are doing transactions on that level, so mercury scales up very well.

cloudking 4y ago

Mercury insures up to $1m deposits by splitting your funds across multiple banks. "Mercury checking and savings deposits are FDIC-insured up to $1M. As a broader effort, we are working on expanding all coverage up to $4M." https://mercury.com/faq https://mercury.com/faq

btown 4y ago

Brex at least mitigates by spreading deposits across multiple banks: https://www.brex.com/journal/how-business-account-works https://www.brex.com/journal/how-business-account-works . But given https://techcrunch.com/2021/02/19/brex-applies-for-bank-charter-taps-former-silicon-valley-bank-exec-as-ceo-of-brex-bank/ https://techcrunch.com/2021/02/19/brex-applies-for-bank-char... and the fact that https://www.brex.com/svb-emergency-line https://www.brex.com/svb-emergency-line emerged literally overnight... it's unclear to me whether these strategies are truly robust, or whether much of this is hype driven by Thiel and other Brex etc. investors - who are, at the very least, incentivized to capitalize on this situation.