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SVB's collapse roiled fintech, but also proved it is essential, a founder says

Silicon Valley Bank's implosion has roiled the banking industry, but one fintech founder contends that the collapse underscores the need for major changes in financial services.

“I was recently listening to Elizabeth Warren, saying that all banking has to be super safe, like a water pipe, and that banking shouldn’t be fun, exciting, and innovative,” said Kristy Kim, co-founder and CEO of alternative credit card provider TomoCredit. “I found myself thinking that that’s so wrong."

She added: "Sure, if our banking and credit systems were amazing to begin with, that might be true. In reality, like in her example of the water pipes, there are so many areas without well-constructed water pipes, just like there are so many potentially amazing young people without access to credit. So, in my mind, there’s a lot of work to be done and we can’t be complacent.”

To be sure, there's a lot of bad news for fintech right now,—from Stripe's shrinking valuation to Block's (SQ) short-seller troubles. However, there's still evidence that fintech investment is chugging along. In 2022, VC deal activity in fintech was higher than it was in both 2019 and 2020, according to data from PitchBook.

Kim, meanwhile, said that in her view the system still requires an overhaul – and it seems like investors are on board. “These systems are archaic,” she said.

U.S. Senator Elizabeth Warren (D-MA) speaks to reporters before attending the weekly Democratic caucus luncheon at the U.S. Capitol in Washington, D.C., U.S., November 29, 2022. REUTERS/Sarah Silbiger
Enemy of fintech? U.S. Senator Elizabeth Warren (D-MA) in Washington, D.C., last fall. REUTERS/Sarah Silbiger

TomoCredit was founded in 2018, and since the company has raised more than $130 million in funding from investors like Hyphen Capital and Gold House Ventures, as well as from financial services giants like Morgan Stanley (MS) and Mastercard (MA). San Francisco-based TomoCredit offers a credit card that helps consumers with poor credit, or none at all, build credit and customers can apply for a Tomo card, even without credit history.

“I think the banking crisis, in a way, is an opportunity for fintech, because this shows that the banking and credit industry is never perfect,” said Kim. “I think it’s good to be skeptical from here, and keep finding room to improve and do things differently."

A headshot of Kim, provided by TomoCredit.
Kristy Kim, co-founder of TomoCredit: “I found myself thinking that that’s so wrong."(TomoCredit)

'There's just nowhere to go'

However, without SVB, early stage fintechs are losing a key partner, said Kim. She and TomoCredit actively chose to work with SVB a year ago, getting a $100 million warehouse facility, or credit line, with the bank. Kim, who'd explored working with other banks, was excited about SVB specifically for its unique fintech expertise.

“For fintech specifically across the board, I feel like we’ve reached some type of scale,” said Kim. “SVB gave TomoCredit and other fintech companies validation – we were able to finish due diligence, prove we had solid business models. This can be a really good opportunity for us to continue building with that validation, and we just have to find that new capital provider, adjusting just a bit.”

When SVB collapsed, TomoCredit temporarily but completely lost access to that credit line, and today the future of that account remains unclear.

So, it's not over yet for TomoCredit and SVB, but the relationship is certainly up in the air. Even in the earliest days of SVB's collapse, she was receiving reach out from other banks that wanted to work with her. However, a few years ago, that wouldn't have necessarily been the case. For less-established fintechs, SVB was the bank that took a chance on them. So, without SVB, the barriers to entry in fintech are higher than ever, said Kim.

“For an early stage company that’s about to launch, it’s going to be hard,” she said. “For instance, if I were about to launch TomoCredit this year, I’d be absolutely screwed. There’s just nowhere to go... From a selfish perspective now, it can actually be a competitive advantage for Tomo, because it’s wiped out opportunities for a copycat to come out this year or next.”

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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