Silicon Valley Bank enhancing payment platform that weathered March storm

A sign outside a Silicon Valley Bank location just as the company was set to be sold through a government-assisted deal in mid-March. SVB is now adding to the payments platforms that demonstrated strength at the height of the bank's turmoil.

Source: Justin Sullivan / Staff via Getty Images.

Now under its new parent, Silicon Valley Bank plans to add functions to its payment platform that proved robust during the height of the banking sector turmoil earlier this year.

Formerly the 19th-largest bank by assets in the US, Silicon Valley Bank (SVB) spiraled in March amid a deposit run that led to the company's failure and government-assisted sale to First Citizens BancShares Inc. During the turbulence, SVB's digital payment system faced an influx of payment inquiries, but the platform showed its resiliency as it was scaled up to meet the surge in demand, according to Gagan Kanjlia, the bank's chief product officer.

Customers on March 9 pulled out $42 billion, or 25.3% of Silicon Valley's total deposits. The scheduled or expected withdrawal rate reached 60.2% a day later, which would have been significantly higher than the one-day withdrawal rates at other notable bank failures, according to the Federal Reserve.

The deposit outflows were a harsh hit to SVB's balance sheet. The bank then moved to shore up its payment systems and ensure that its technology stack and its vendors' capabilities kept up with the scale of the money movement.

"Did that, in a way, support the outflow of money? Absolutely. But it was the right thing to do for our clients," Kanjlia said in an interview.

The velocity of money outflows at SVB sent an alert to the banking industry, prompting banks to reevaluate their risk control protocols in the era of digital banking. But it has not deterred SVB, which is continuing to build its payments platform.

Kanjlia, who oversees SVB's client-facing payment solutions, identified real-time payments and embedded payments as areas of focus on SVB's priority list.

SVB has been live on the Clearing House's real-time payment network (RTP) since October 2022, enabling its customers to receive payments instantly. By the end of 2023, customers will be able to also send payments on RTP, Kanjlia added.

Some have raised concerns that real-time payments using 24/7 settlement schemes could further increase the scale of outflows and make banks facing liquidity pressure even more vulnerable. For its part, SVB expects real-time payments to provide it with a competitive edge.

"Real-time payments is becoming a real big driver of innovation in payments, and we're just in the beginning," Kanjlia said.

An unplanned scale-up

New product launches this fall and winter will reflect a "pretty material acceleration" of SVB's capability in building payment functions because it has a much larger platform after the acquisition by First Citizens, Kanjlia said. The executive is optimistic that the platform can adapt in part because the infrastructure showed its ability to adjust during the aftermath of SVB's failure.

Regulators closed SVB on March 10 and formed Silicon Valley Bridge Bank on March 13, creating a transition period for the FDIC to look for a suitable buyer and for SVB to stabilize from the deposit outflows. The FDIC also removed the insurance limit of $250,000 for all depositors at SVB.

SVB during the early hours of March 13 focused on resuming transfers via the automated clearinghouse (ACH) system, wire transfers leveraging the SWIFT network and card programs, Kanjlia said. After making sure they were up and running, SVB scaled those systems to clear up the backlogs, he added.

The scaling of the payment system also helped the bridge bank to process deposit inflows, as the safeguard by the FDIC attracted back some deposits, Kanjlia said. Meanwhile, it handled surges of cross-border transfers when SVB sold its international units, and payments between its off- and on-balance sheet products, he added.

Looking ahead

To execute a combined roadmap with First Citizens, in August SVB appointed Martin Murrell as head of global payments and Milton Santiago as head of global digital solutions. As a major focus of the team, real-time payments will be completely integrated into its digital system, Kanjlia said. The bank has built a significant cushion on capital, which will help make sure real-time settlement of payments does not impact liquidity and capital levels, he added.

In the first quarter of 2024, SVB customers will be able to send instant payouts using RTP via its API banking channel. SVB will also offer instant settlement for merchants using payment facilitators and instant loan funding and disbursements, including early wage access.

SVB is committed to implementing FedNow in the future, Kanjlia said. The Fed launched the real-time payment network FedNow in July.

"Real-time payments is going to be more inexpensive on a fully loaded cost basis. Because it results in less inquiry, less confusion between multiple parties," Kanjlia said. "That's actually a good thing for both sides."