April 12, 2023

6 Banking Integration Lessons Learned One Month After SVB Collapse

by Kent Brown in Banking Core Integration , Digital Transformation , Fintech 0 comments

It all started on a Thursday with a phone call from our CEO, David: “Are you on top of this SVB thing?” By the end of the weekend, Silicon Valley Bank (SVB), one of the most storied banks in the technology industry, had collapsed, the FDIC had taken control, and our team had been all-hands-on-deck supporting our community financial institution customers through this extraordinary event. 

One month later, we look back on six primary lessons we’ve learned about our technology, the financial services industry, and banking integration that will reshape our product and community financial institutions (FIs) for the future.

Lesson 1: Prepare for worst-case scenarios

By the end of the first week, one of our community bank customers alone moved well over $2 billion in deposits by completing several thousand wire transfers through the PortX platform. These numbers represented around three times the bank’s average wire volume and a staggering 10x normal dollar value compared to averages for an equivalent time frame.

The experience reinforced our design decision to over-provision PortX to handle the heavy demands that a crisis can place on technology. It was no accident that our platform dealt with a load three times higher than usual because it is prepared to handle loads around 10x those experienced during the SVB crisis. While our platform is currently bolstered by over-provisioning, we are developing and implementing auto-scaling capabilities to maintain the same level of confidence in our system more efficiently.

Lesson learned:

An FI’s financial systems must be capable of handling worst-case scenarios. The SVB event emphasized the importance of reliability, scalability, and efficiency in fintech.

Lesson 2: Exception management is vital during periods of high-volume transactions

Over a short span, our FI customers sent wire transfers at a rate that exceeded normal volumes by 10x! PortX’s automated wire process and exception management procedure played a significant role in our customers’ operational efficiency during the event. Without automation, manual wire processing would have rapidly overwhelmed the staff, causing delays and increasing the risk of errors.

Lesson learned:

A streamlined and efficient exception management process enables banks to minimize the impact of errors and ensure that wire transfers are completed promptly and accurately. Maintaining the trust and confidence of customers who rely on the FI’s wire transfer services is critical to the FI’s reputation in an existential crisis.

Lesson 3: Real-time access to data via APIs is essential in tumultuous events

In a fast-paced, high-volume situation, individual data points can add up fast. Without a cohesive way of tracking data, FIs will struggle to identify and discern areas of risk. This is where an automated, API-centric approach to tracking data can be a lifesaver.

Most traditional Wire and ACH payment systems provide canned reports that lack the flexibility required when evaluating operational efficiency in a high-pressure scenario. By contrast, an API-centric approach allows FIs to build custom reports and dashboards that provide decision-making information and real-time vital signs for FI leadership and technology teams. 

Lesson learned:

Tracking and reporting real-time data cohesively is critical for an FI to navigate challenging crises and ensure high reliability and efficiency in its operation.

Lesson 4: FIs need a financial services-focused integration partner

During a crisis, FIs need to have an integration partner that is ultra-focused on the financial sector versus a big-name general integration firm. A true financial integration company should possess a deep understanding of the FI’s needs and challenges. This experience is important as it enables the partner to provide tailored solutions and support during times of crisis. Throughout the SVB event, our team was in immediate contact with our customers’ technology teams, monitoring the situation closely to ensure their success.

Conversely, big-name general integration companies lack a thorough understanding of the unique challenges in financial services and may not provide the level of personalized support required. This shortcoming can result in delays and errors that significantly impact an FI’s ability to react nimbly to rapidly changing market conditions.

Lesson learned:

An FI’s integration partner will play a vital role in maintaining its reputation and ensuring that its customers’ needs are met, especially in the face of significant challenges. Ultimately, the success of an FI’s operations during times of crisis may depend on a partner that actually understands its business and is only a phone call away.

Lesson 5: Make digital online account opening as seamless as possible

Rapid online account opening played a key role in community FIs’ ability to quickly and efficiently serve an influx of new customers. Without such a system in place, FIs will struggle to process high volumes of account applications in a timely manner, leading to missed business opportunities. This capacity helps to build customer trust and confidence as it shows that the institution is able to adapt and respond quickly to changing circumstances. 

This topic deserves a write-up of its own. For now, check out our online banking partners by visiting the Connect Marketplace.

Lesson learned:

A streamlined account creation process is essential for community FIs to thrive during a bank run or other event that requires its team to handle a massive customer migration.

Lesson 6: The winners will be FIs with an API-centric integration strategy

An API-centric integration strategy allows FIs to work with businesses in new ways, particularly in the context of embedded banking and automating traditional banking workflows. This approach enables FIs to open their systems and data to third-party developers and build innovative financial solutions. By doing so, FIs can keep pace with the fast-changing digital landscape and compete with fintech startups that prioritize innovation and customer-centricity. 

Lesson learned:

An API-centric approach is crucial for FIs to stay relevant and meet the evolving needs of their customers and partners – especially in the wake of an industry-shifting event.

What were your key takeaways from the SVB collapse?

In general, the surge in wires, ACH, and deposits highlighted the role of technology in facilitating agility in a crisis. It emphasized the importance of a financial services-focused integration partner amidst heightened competition. Additionally, the success of regional banks throughout the event demonstrated that community FIs can establish resiliency and maintain positive relationships with their clients and communities, even in unpredictable circumstances.

What was your FI’s experience during this monumental event? We are always learning and would welcome insights that improve our industry and help our community FI customers. We would also be happy to share more detailed information about our experience through the SVB crisis if it leads to positive changes that benefit our partners. Start a conversation with our team today.

Leave a comment