Fintech startups are racing to serve LatAm entrepreneurs left behind by SVB

by James · March 14, 2023

Since Silicon Valley Bank’s meltdown Thursday morning, more than 400 startups in Latin America seeking a new home for their international banking needs have fled to a single Brazilian fintech startup called Trace Finance.

“Throughout Thursday and Friday, we initiated many payments from SVB,” said Trace co-founder Bernardo Brites. “We were in desperate mode trying to help as many companies as we could.”

Trace itself is an early-stage startup, but is already processing an estimated $1.5 billion in new customer accounts added in recent days, according to Brites. Founded in 2021 as a cross-border payment provider, Trace closed a $4.3 million seed round in February 2022 led by New York-based HOF Capital.

Last week, Trace launched a competitor checking account, after seizing the exodus of SVB depositors, and many founders have jumped at the opportunity. Startups including Rocket.chat, Mercado Bitcoin and Rentbrella have all signed up for the new banking service, TechCrunch reported.

The scramble for alternatives speaks to the chaos that SVB’s collapse has left for clients in emerging markets.

Even when the dust settles, several banking platforms field requests from countless startups in Latin America that don’t have a reliable banking partner for international transfers.

Fintech startups such as Brex, Ramp and Mercury have taken a share of customers fleeing lenders. Brex has reportedly received billions of dollars from a number of startups that frantically moved their capital over the past few days.

In the Latin American venture economy, SVB played a leading role as a lender to start-ups raising money from international investors, said Lucas Abreu, a venture capitalist at Sao Paulo-based Astella Investimentos. “SVB was a very important part of the ecosystem,” he added.

Late Monday, SVB’s successor institution, now under federal control, declared that the business is back online. Chief executive Tim Mayopoulos began encouraging depositors to return, saying the bank had resumed “business as usual”, but it is far from clear whether a critical mass of customers will actually return.

Latin America is not the only market where SVB punched above its weight. Chinese startups made up SVB’s second-largest customer base, and they may face lengthy hurdles to move their assets, The Information reported on Tuesday.

Many larger growth-stage startups in Latin America have already transferred their money to a large bank, such as Morgan Stanley and JP Morgan. “When you have over $20 million in your account, every bank wants you,” Abreu said.

But it’s a much different story for startups and early-stage startups, he said, adding: “It’s not that attractive for the big players to capture the seed-stage companies.”

Many top-tier VC firms require Latin American startups to bank in the Cayman Islands or Delaware, due to their more favorable tax regimes, which presents an additional challenge for early-stage founders in emerging markets.

While fintech startups are fighting to take a share of SVB’s former customers, it remains to be seen where the founders will put their money in the long term. Some, especially startups at the seed stage, may eventually return to SVB.

“Trace Finance could really be one of the companies that captures this opportunity,” Abreu said. — But it is still too early to say.