The bank account was appropriate for small businesses. IE, restaurant, laundromat, ect. This became clear when the article explained that there was education for tellers about what a tech startup is.
Mitchell didn't take the call. He ended the call as quickly as he politely could, short of hanging up on Alex.
Edit: I've had a few bank tellers advise me on how to adjust my bank account correctly in the past. I'm going to assume this is what Alex was trying to do.
I might also point out that, around this time, Wells Fargo tellers were very pushy and would make calls like this. (I got one) It later came out that they were under intense pressure to sell banking services that nobody wanted.
Thanks for answering!
So there is some set of services that are useful specifically to a tech startup but not a restaurant, but then there are a category of services that "nobody" wants, neither restaurant nor startup. Do you have an examples of any of those categories?
I am not asking because I disbelieve you. I am asking because I find this all fascinating, but it seems my imagination is lacking! What would I want from a bank account as a tech startup, versus a non-tech startup, versus a restaurant, that the bank wouldn't already give me when I sign up for a normal business account?
You said you were "advised to adjust" your account. Again, I apologize if I come across as ignorant, but what kind of adjustments?
(I’m not the person you replied to.)
My understanding is that people with financial training don’t think about money, they think about risk. If you are a banker and ask yourself “What is the probability that this 100 deposit will be here in another 30 days?” you might answer differently depending on what you know about your customer.
- If you think that your customer will withdraw 50 in the next 30 days, you might take the other 50 and invest it in a 30-day CD, and take the other 50 and just hold on to it.
- If you think all 100 will remain in the account the entire time you could invest all 100.
- etc.
If you are the customer you want a bank that understands what kind of inflows/outflows you’ll typically have. The bank wants to manage the risk, and you want a bank that doesn’t freak out at what seem to you to be very mundane transactions.
A bank account is only insured up to $250k by the FDIC. Chase is a very safe bank, but the amount over that is still not insured, so it's not safe.
He also didn't get any extra controls on the account - you can see from the end of the story that they just forgot about it and someone stole $100k of it!
> So there is some set of services that are useful specifically to a tech startup but not a restaurant, but then there are a category of services that "nobody" wants, neither restaurant nor startup. Do you have an examples of any of those categories?
It wasn't a specific service, it was that Wells Fargo employees had a "performance metric" (which I understand in certain postapocalyptic hellholes translates to "a threat to your livelihood and your ability to receive medical treatment if you fall ill") on the number of products each customer was using. So they would encourage customers to open extra savings accounts, credit cards etc. (or some of the more enterprising employees would skip the phone hassling stage and just open these accounts).
The teller who called me basically gave me awful service.
I visited the bank a few days earlier because they sent me a debit card that I didn't want. (I wanted to switch it to an ATM card because it's harder to commit fraud with them.)
The teller basically didn't listen to me and tried to push services on me for 15-20 minutes. Eventually he realized I was getting extremely frustrated and helped me do what I needed to do.
The call from the teller a few days later was extremely unexpected, and I was justifiably curt. I said something like, "I don't want any new banking services, there's no reason for you to call me."
> You said you were "advised to adjust" your account. Again, I apologize if I come across as ignorant, but what kind of adjustments?
A few months ago, a teller offered to move my savings account to a higher interest version. I just had to maintain a minimum balance. A similar thing happened when I had my first summer job before college: A teller offered me a higher-interest money market account, it was just limited to something like 4 withdrawals a month.
> Do you have an examples of any of those categories?
I'm not an expert in startup finance, but I'll try my best.
The mistake that Mitchell made was kind of like keeping all your liquid assets in a checking account. Imagine if, instead of investing in a 401k (or similar,) retail investments, CDs, savings accounts, ect; you just put your entire life savings in a single checking account. Not only would you sacrifice a massive amount of interest, you would probably lose FDIC protection as your account grew, you'd be at risk of someone forging checks, and you'd be at risk of debit card fraud.
Startups often talk about their "runway." This is how long the startup can pay their employees, rent, and other bills; if they have no income. Don't quote me, but this is usually something like (roughly) 2-5 years.
Now, keeping the "runway" money in a single account is kind of, to put it bluntly, dumb. (It's like if you kept all your liquid assets in a single checking account.) Most of it should go to low-risk investments, like CDs and other high-interest savings accounts. I'm sure Silicon Valley Bank has a very straightforward way (for startups) to do this, that Chase doesn't have.
> What would I want from a bank account as a tech startup, versus a non-tech startup, versus a restaurant, that the bank wouldn't already give me when I sign up for a normal business account?
Remember the term "runway." Restaurants are typically profitable from day one, or become profitable quickly. They spend roughly as much as they take in. Startups often run at a loss for many years before they become profitable.
Likewise, a restaurant might have to pay back a loan that it used to buy equipment, renovate, or purchase the business. Startups hold onto their investment as "runway" instead of paying back a loan.
I'm going to assume that Silicon Valley Bank has products built around the fact that a startup has a large sum of money that it spends very slowly, versus a restaurant that needs loans and spends money as quickly as it comes in.
> I'm going to assume that Silicon Valley Bank has products built around the fact that a startup has a large sum of money that it spends very slowly, versus a restaurant that needs loans and spends money as quickly as it comes in.
That's what SVB assumed, and they were very wrong.[1]
[1] https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Ban...
Sounds like they got greedy:
> Some banking experts said that the bank would have managed its risks better had it not been for the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), enacted in 2018 and supported by SVB CEO Greg Becker, which reduced the frequency and number of scenarios of required stress testing implemented under the Dodd–Frank Wall Street Reform and Consumer Protection Act for banks with under $250 billion in assets.
Very informative. Much appreciated.
If the best Alex could do (or that Chase tells their clerks to do) was "are you sure you don't need anything?" I think it's the bank's fault.
Considering how we receive so much junk communication from banks one would imagine they'd be more vocal about what the issue was.