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Maximizing Your Finances: Optimizing Cash Flow and Mitigating Risk with Multiple Sponsor Banks and Payment Methods

The collapse of the Silicon Valley Bank (SVB) in March 2023 signaled an uncertain outlook for the U.S. economy and emphasized the need for businesses to consider several aspects of their payment processing approach while taking into account an ever-changing regulatory environment.

In this article, we explore the benefits of using a payment processor who supports multiple sponsor banks and allows customers to pay in multiple ways. This approach leads to better management of cash flow for your business and is an effective risk-management approach. With these measures in place, along with staying up to date on any regulatory changes in the payments processing industry, your business can stay ahead of the curve and maintain financial health in the midst of challenging times.

Lessons from the Silicon Valley Bank Failure

The banking industry is so deeply woven into the health of the U.S. economy that any disruptions can cause a ripple effect for other stakeholders. When it was announced in March 2023 that Silicon Valley Bank (SVB) had collapsed, regional banks felt the pressure worldwide and credit markets tightened.

The SVB failure is notable for another reason — it represents one of the largest bank failures in U.S. history. Below is a list of large bank failures from the last 30 or so years.

Continental Illinois 1984
First Republic Bank Corporation 1988
Washington Mutual 2008
Silicon Valley Bank 2023
Signature Bank 2023
First Republic Bank 2023

Silicon Valley Bank had been ranked as the nation’s 16th largest bank prior to its abrupt closure.

Stakeholders are still asking, “What happened?” There’s no single factor that led to the Silicon Valley Bank failure. Rather, multiple factors collided to lead to the bank’s financial collapse. First of all, the majority of Silicon Valley Bank’s clients were tech-based — well-known startups and venture capital companies. SVB secured this unique base of clientele through higher rates on deposits and by purchasing bonds that yielded higher returns over longer terms.

When the U.S. Federal Reserve increased interest rates — the highest they’ve been in many years — the entire venture-capital market was impacted. One of the results was that the bonds SVB had purchased significantly declined in value, offsetting SVB’s balance sheet, a problem SVB attempted to remedy by selling some investments at a $1.8 billion dollar loss. Additionally, according to experts, SVB had a quantity of deposits and loans coming from less-than-ideal lending standards and many businesses started pulling funds in order to cover day to day expenses.

These events culminated in a run on the bank in March 2023 with many companies moving their money out of SVB to protect their assets. SVB didn’t have the funds available to cover all of the withdrawals, and the California Department of Financial Protection intervened by shutting down SVB and moving it into receivership.

The Power of Multiple Sponsor Banks

One way to protect your company from the impact of a bank disruption is by partnering with a payment processor that has established relationships with multiple sponsor banks for seamless processing. This is a smart choice for any company that wants to ensure reliable and efficient payment processing. By leveraging the redundancy and flexibility provided by multiple sponsor banks, a company can mitigate the risk of payment delays or errors. This means that your company can improve the accuracy and timeliness of its payment experience, fostering positive relationships with customers.

Many payment processors do not have relationships with multiple sponsor banks, relying on just one for their processing – however, those with multiple can reduce the risk of fraud and financial loss. If one bank experiences a security breach, technical issue, or insolvency as in the case of Silicon Valley Bank, financial transactions can be rerouted through another bank, ensuring continuity of service and security of funds.

Overall, partnering with a payment processor like REPAY that has established relationships with multiple sponsor banks improves the reliability and efficiency of your payment processing services, and ultimately supports the success of your business operations.

Tapping into Multiple Payments from Your Customers

Whether you’re a small business or a large enterprise, one of the most important aspects of your company is the ability to take payments from your customers. In fact, one of the reasons 82% of small businesses fail is because they do not have adequate systems and processes in place for managing cash flow for the goods and services they provide.

The most effective way of preventing situations that lead to late and missing payments and cash flow issues is providing a wide variety of payment options at the time of pay, to include the ability to take recurring and scheduled payments. For example, allowing customers a choice between using a debit card or ACH to pay for a product or service, using an online portal, text-to-pay functionality, mobile app and more. If you do not have a payment processing system in place, providers like REPAY are available to fill this gap. REPAY enables clients to quickly accept payments from one easy-to-use platform.

Some benefits of having a system that allows for multiple types of payments:

  1. Easy Payment Process: Not only does this provide a seamless experience for the customer, it makes it easy for the customer to work with your business in the future.
  2. Increased Payments and Conversions: Having limited payment options can deter payments since your customer may not be able to pay using their preferred or approved payment method. Multiple payment options greatly increase the likelihood of converting a payment at the crucial last step.
  3. Wider demographics: By having multiple payment options, you can reach a wider audience. After all, different customers have different preferences and capabilities when it comes to their preferred payment method.

Staying Updated on Changing Regulations

From stricter enforcement, to higher interest rates, to the incorporation of new technologies, to the political climate, guidelines change often enough to require due diligence. Going back to our example of the Silicon Valley Bank failure, one bank crisis can cause a ripple effect. These events often lead to prompt and stricter regulatory standards for the banking industry as a whole. Additionally, the government can impose rules that require your company to accept a new payment method for a product or service.

In working with a payment processor like REPAY, that both supports multiple sponsor banks and can easily accept newly introduced payment methods, your company can stay ahead of the curve and seamlessly adapt to a change. Awareness of new regulations and reliance on a partner that has compliance built in protects your business today and in the future.

This blog was originally posted on RMAi.

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