How a fintech company handled a fintech crisis

Airbase found itself trying to access its own funds while also helping customers

When Silicon Valley Bank collapsed earlier this month, it sent massive waves across the banking and venture capital worlds, and beyond.

Companies like Rippling, Brex and many others scrambled to secure funding to offset not being able to access funds, while companies on the payments side, like Etsy, worked to find alternative ways to process payments.

Spend management company Airbase found itself straddling both of those worlds during the SVB crisis. TechCrunch+ spoke with CEO Thejo Kote about how Airbase not only had its funds with SVB but also was “the only spend management company that uses SVB as the payment rails for large parts of our platform.”

Airbase CEO Thejo Kote. Image Credits: Airbase

When all of this went down initially, much of the attention was focused on the depositors who held funds, Airbase included; SVB was its primary operating bank, Kote said. SVB went into receivership on March 10, but there wasn’t the first sigh of relief until March 12 when the U.S. government stepped in and said deposits would be protected.

“It was kind of a rollercoaster ride until that news [about the protected deposits] came out,” Kote said. “We had a unique front-row seat to this episode as a company that has its payment rails in SVB.”

Impact on the business

Airbase currently processes over $5 billion of annual payments on behalf of its customers, with a large portion flowing through SVB from customer bank accounts. On that particular day of the collapse, a “fairly large portion” of Airbase’s customers “had payments in flight,” Kote said.

That meant that not only were they drawing funds for payroll but also to pay vendors, including many time-sensitive payments. The funds in transit totaled eight figures, and much of that was ultimately delayed by a few days, he said.

“That pretty complex machinery, which handles all the flow of money, came to a grinding halt,” Kote said. “Then we had to manage bringing it all back online and dealing with the fact that customers, in some cases, would have probably paid vendors out separately.”

All of that required some major communication with customers. It was an “all hands on deck” situation, with each Airbase employee — Kote included — calling people to make sure Airbase didn’t bring their systems online and end up double paying vendors.

The round-the-clock effort involved in getting back up and running

Airbase’s typical globally remote team was gathered together over the weekend of March 11 to start working on things. Kote recalls that the group of 20 people “basically didn’t sleep for a few days” as they worked to get alternate payment rails up and running.

“We didn’t know when Silicon Valley Bank would come back online, if the Fed would guarantee funds and deposits or if they would be able to move money ever again,” Kote said. “As we moved into the next week, all of these were open questions. Obviously, we had contingency plans upon contingency plans upon contingency plans, and we were working through all of that as information was changing on an hour-by-hour basis.”

Airbase was able to start moving funds through Silicon Valley Bank again on March 14.

That’s when the company “was faced with an interesting choice,” Kote said: continue working on the redundant rails with another bank partner or continue to use SVB rails again. Ultimately, Airbase’s leadership team chose to get the SVB rails going “because we were satisfied that the funds were safe.”

“Ironically, at that point and still today, funds in SVB are probably the safest funds because of the guarantee that the FDIC provided,” he said.

For Kote, it was important for the company to have very close and clear communication with customers. That included sending out an email — sometime multiple emails — to thousands of administrators on the platform to keep them updated.

Deciding to stay with Silicon Valley Bank for its payment rails was a tough decision. Kote said that some of Airbase’s customers asked if their money could be moved to one of the top four banks, like Wells Fargo or JP Morgan Chase.

“That’s the kind of question every fintech company will get right now,” he said. “We were having good conversations with these banks, but they don’t move as quickly, for obvious reasons, so there were a lot more layers of processing. Having payment rails in bigger banks is something that we’re definitely prioritizing, and it will happen, but the initial set of payment rails would be from a smaller bank that can be a lot more nimble and move a lot more quickly.”

Lessons learned

Is it possible for a company to predict something like this would happen and be ready for it?

“You can try to plan for a ‘Black Swan’ event, but then that’s all you’d be sitting and doing all day long,” Kote said. “However, as you get to a certain volume of funds flowing through your platform, it becomes more important that you have the redundancy and the plans to account for the worst-case scenario.”

Even though customers had a delay for their payments to start flowing again — in some cases the delay lasted up to four days — Airbase learned that all of its customer communication was not for nothing, Kote said. “It was a useful lesson learned for us about just how much that was appreciated by our customers in terms of being kept in the loop of exactly what was happening and what to expect,” he said.

Airbase also learned that it wasn’t alone. Kote joined some ad hoc Slack groups with other fintech companies working with Silicon Valley Bank to share advice and strategies. “It was awesome to see a bunch of companies like that start collaborating and helping each other,” he said.

And, interestingly enough, even with the sleepless weekend, Airbase’s leadership team also learned that coming together in chaos was “a defining moment” for the company.

“Nobody can really plan for the second-biggest failure in U.S. history,” Kote said. “Customers are asking if we can just move their money to a top bank and no other bank, and in some ways, we will make it happen as an overall redundancy plan. It’ll be interesting to see how it plays out and what customer expectations are now.”