An Australian fintech unicorn – which is valued at $A7.91 billion ($US5.5 billion) – could cash in on the catastrophic collapse of Silicon Valley Bank as companies scramble to open US accounts to receive funds caught up in the bank’s demise.
Silicon Valley Bank (SVB) went into receivership last week – marking the second biggest bank failure in US history – and had a market capitalisation of about $A40 billion as well as assets of more than $A300 billion.
Now Airwallex has been fielding thousands of requests from new clients, who are looking to deposit their frozen money, after the US Federal Reserve announced SVB customers would have access to their funds.
Already 250 new companies have signed up or expressed an interest to join Airwallex’s platform since SVB’s collapse and came after its co-founder Jack Zhang threw a lifeline to troubled start-ups looking for a “strong global financial infrastructure”.
Airwallex was co-founded in Melbourne by Mr Zhang and three of his university friends in 2015.
It works by allowing a client to open a local bank account in 60 different currencies, so they can instantly send and receive money internationally.
Airwallex director of strategy for ANZ Amelia Hamer said it was a “really difficult situation” for so many companies right now – many of which were start ups and tech businesses.
“Our teams have been working around the clock and through the weekend to support double the number of new customers moving their business to Airwallex over the last few days compared to the same time a week ago,” she said.
“Start ups, tech companies and small and medium enterprises have been hit the hardest … In the past few days more than 250 Australian businesses have seen the appeal of Airwallex’s global payments and financial services infrastructure and the vast majority have been tech companies.
“For many of these companies the cash flow and capital implications mean they need global solutions, fast, and Airwallex works with more than 60 banking partners globally.”
The US Federal Reserve offered $A37.8 billion ($US25 billion) to ensure companies could access deposits caught up with SVB, which included Aussie companies such as Canva and several local venture capital firms.
It comes at a time as the tech sector has been rocked by tens of thousands of job cuts across giant players and smaller start-ups.
But Airwallex appears to be bucking the trend. The company is expected to add 300 new roles this year, potentially 500, with more than a third of that growth for investments in its product and engineering teams.
About 90 of these roles are set to be created in Australia this year, with a team of about 200 in place Down Under at the end of 2023 with the fintech also hunting for bigger premises in Sydney.
Mr Zhang said Airwallex was “supercharging” its own workforce.
“There’s a tsunami of talent out there that other tech companies have turned their back on. We’re growing and want to snap them up because good people are what helps bring our vision to life,” he said.
“I don’t think you can quantify the missed opportunity from cutting back on the talent and skills that could shore up your future.
“We’ve got big ambitions for 2023 while other players are cutting back on functions like engineering and product design. Australia is where we started and it’s where we have some of our largest engineering and product teams so we want to keep building on the great pool of talent that are helping make us the go-to financial platform for modern businesses.”
Meanwhile, other tech outfits are scrambling as they poured all their funds into SVB.
UNSW Business School Associate Professor Mark Humphery-Jenner said SVB also put all its eggs in one basket causing the crisis.
“As the name suggests, the financial institution focused on start-ups, venture capital funds, and the broader Silicon Valley ecosystem. The deposit base was highly concentrated. This is a bad foundation for a bank,” he explained.
“The problem is that those clients have similar economic exposures. If one client must withdraw their funds, it is very likely that myriad other clients must do so. This is analogous to the mortgage-backed security crisis in 2008: when one borrower defaults, it is likely that many more will also do so.
“Silicon Valley Bank had a steady increase in withdrawals. It has been a tough last year for start-ups and the tech industry. Since the pandemic, VC funds have tightened their belts. Enterprise sales are taking longer. So-called ‘down rounds’ are more frequent. And so, tech start-ups – and VC funds – increasingly needed their cash, triggering steadily more withdrawals and fewer bank deposits.”
When SVB decided to embark on a capital raise in order to support its balance sheet and ensure adequate liquidity, it spooked the market, he added.
“In this raise, it revealed that it had sold bonds. It requested around $US2.25 billion. The market responded badly. This was likely on the news that Silicon Valley Bank had sold all its ‘available for sale’ securities and was in a dire liquidity and solvency position,” he said.
“A classic bank run ensued. Within a day, $US42 billion was withdrawn. This largely followed VC funds extracting their deposits and instructing their portfolio companies to do so. This created an immediate liquidity – and potentially solvency – problem for Silicon Valley Bank.”
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