In just 48 hours, Silicon Valley Bank went from the 16th-largest U.S. bank in assets to a cautionary tale for aspiring tech startups.
The bank’s client base consisted largely of tech startups with employees across the globe. As a result of the collapse, these companies suddenly found themselves scrambling to meet payroll deadlines.
Fear mounted for many of these firms, with mass layoffs and even possible collapse becoming very real concerns.
Even so, events like these can serve as reminders of lessons we might be overlooking when things are calm – but should be top-of-mind.
In this post, we dive into three payroll payments lessons companies would be well advised to take to heart, especially in today’s unstable economy.
Lesson 1: Banks can’t provide solutions as comprehensive as payments platforms can
One of the biggest reasons SVB’s demise was so shocking had to do with the trust companies had put in it. SVB succeeded in establishing itself as the go-to bank for aspiring tech companies. Its sudden collapse left its customers – and the world – with a sense of doom and confusion.
SVB wasn’t unique in the image it had built for itself. Banks have nurtured their reputation as trustworthy institutions that can securely hold and transfer funds from Point A to Point B. But with no real culture of innovation, mostly outdated legacy systems, and intentionally slow compliance processes, they’re unable to cater to specific financial use cases. These are usually left to the fintech industry to serve and solve, especially when it comes to global payroll.
Organizations that rely only on banks to disburse employee payments have resigned themselves to a tedious process that can take several weeks each pay cycle. And when employees in different countries need to get paid, in different cycles, and under different regulations, the process can become even more convoluted, with transfers taking longer and multiple fees nibling away at salary sums.
Local banks – being a non-optimal solution for global payroll payments – cause a slew of headaches. One, for example, is their inability to regularly recognize the source of a salary when it comes from a foreign bank – which can hurt employees’ credit scores (which rely on banks to correctly identify transfers as payroll). Not to mention issues with regards to speed, accuracy, and compliance.
A dedicated payments platform like Papaya streamlines the process by providing technology and services tailored to global payroll and global payroll payments necessities, including a clear delivery date, an ability to use local payroll sources, and virtual local infrastructure in every country so that you can always trust the money you send will be a full-value transfer.
Lesson 2: Working directly with banks isn’t the ideal way of doing global payroll
Startups that kept all their funds in SVB are the ones that struggled most with the bank’s collapse, as the “all eggs in one basket” proved precarious. Now, they are in the unfortunate position of desperately looking for a solution to make payroll. Payroll is undoubtedly critical for every company and often their biggest expense and most significant liability.
It’s not that banks aren’t important when it comes to global payroll – they are a necessity. But they play a particular role in the process, and on their own can only solve some of the difficulties surrounding global payroll. On top of that, many startups find themselves in a situation where they can’t afford a first-tier bank and must settle for less established and often less secure banks.
That’s why so many international companies find value in global payroll technology and service. At Papaya, we’ve perfected the balance between fintech innovations and banks’ trustworthiness so that you know that when you transfer funds to your employees, they get there on time and in the right amount.
For one, our solution is flexible, meaning that whether you’re a global enterprise company or an emerging startup, we can help with your payroll transferring needs. And we’ve put trust and security as our top priority: our in-house built transfer rails are backed by J.P. Morgan Chase, the number one bank in the U.S., known for having weathered worse storms than the one SVB recently found itself in.
Finally, we keep the process fast-paced, with the money reaching your employee’s bank account in 72 hours max (while taking liability).
Lesson 3: What does a treasury strategy mean in a modern global reality?
Traditionally, companies have two main options for banking: retail and investment. But the problem with this model of banking is that it doesn’t really consider all the needs surrounding corporate finance in a modern environment, and thus falls short of building a proper treasury strategy.
For a long time, overcoming the complexity of payroll fell through the cracks – resurfacing as an afterthought, at best. Globally expanding companies are becoming aware of the fact that a true treasury plan must consider every aspect of a company’s financial resources, with global payroll payments taking center stage.
Today, with continuing exponential technological advancement, companies have an opportunity to create a treasury strategy that is dynamic, contingency-proof, and global, with different solutions tailored to different needs. Working tirelessly on matching the right solution to the right need or pain is an endless challenge treasury leaders face – and the ability to elevate global payroll and payments was never more accessible.
Silicon Valley Bank left a lot of startups in a situation no company wants to be in. But there are lessons here that every company can learn when it comes to payroll – from building a treasury plan that’s layered against unforeseeable events, to relying on technology to create a multi-faceted solution for your payments.
Here’s to never having to remind ourselves of this ever again.