Businesses that want to safely store cash in excess of Federal Deposit Insurance Corporation limits have options that don’t involve juggling multiple accounts at multiple banks.

They can invest directly in government money market funds or in Treasury bills. They can inquire about programs within their bank, such as deposit networks and reciprocal agreements designed by intrafi and the like, or automatic sweeps of amounts greater than $250,000 in money market mutual funds.

Or they may turn to fintechs that offer an advanced technological version or a combination of the above.

The disconnect between the size of accounts companies typically maintain and levels of deposit insurance has been around for a long time, said Brian Graham, a partner at Klaros Group. But the three days between the Silicon Valley Bank’s failure and the FDIC warranty that would cover uninsured deposits got people into action.

“There’s been a lot of rush in the last few weeks as these organizations figure out what they want to do,” Graham said in an interview in March.

Fintechs like Meow or Vesto, and business-oriented neobanks like Brex and Mercury, have mechanisms that allow business clients to invest idle cash in Treasury bonds or money market funds. Some companies began turning to Meow and Vesto long before the bank’s recent collapse, particularly to easily invest in low-risk, high-return instruments. As such, the reasons they have to stay are likely to persist even if the FDIC raises deposit insurance levels for business.

“Fintechs are moving faster” than banks, Graham said. “They’re putting the pieces together to find solutions that they hope will appeal to customers, and they’re not wedded to one set of tools.”

The security of each investment product varies.

“There are many flavors of money market mutual funds and many flavors of government securities,” Graham said. “The US Treasury is a different credit risk than some local sewer authority on a municipal bond.”

Mercantile, which partners with organizations to create custom-branded cards, has had excess cash in Vesto for the past six months. Vesto defines itself as a cash management platform for venture capital-backed startups and mid-market companies. He builds customized portfolios for his clients based on their risk tolerance, liquidity needs and more, typically by investing in Treasury bills, money market funds, corporate bonds and certificates of deposit. The back-end custodian is BNY Mellon Pershing.

“With the market changing and Treasuries a bit more interesting, we wanted something that was very easy to use and would expose us to a high-yield Treasury option without jeopardizing available cash,” said Samuel Poirier, CEO and founder of Mercantile. “Vesto understood the need to withdraw cash on a monthly basis to finance the business.”

He chose Vesto, which launched in 2022, for its simplicity and his understanding that companies like his will regularly withdraw funds. Only invest in US Treasuries through Vesto.

Benjamin Döpfner, founder and CEO of Vesto, says he has seen an influx of new clients since SVB collapsed.

“There has been a desire to diversify their holdings and cash,” he said. “We found that many businesses have almost all of their cash in a single bank account.” He says his clients choose Vesto to find a safe home for their cash and earn high returns.

“Often founders and CEOs don’t have the capital markets expertise to do this themselves,” Döpfner said.

Döpfner describes the company’s investment style as “incredibly conservative.”

“We take the view that safety and liquidity are the number one priority and performance is the priority thereafter when managing corporate cash,” he said. “We only work with highly liquid ‘ultra low risk’ investment products like US Treasuries.”

Stocktwits, a social network for traders, began investing in Treasury bills through meow long before SVB and Signature Bank collapsed in March. Meow is a banking platform that allows companies to purchase Treasury bills using registered investment advisers and broker-dealers.

“When the Fed started raising rates, we saw an inverse yield curve, so it made sense to put some of the company’s capital to work in addition to diversifying credit risk,” said Philip Picariello, vice president of finance and operations at Stocktwits. .

He views company capital as falling into three categories: immediate liquidity for payroll and accounts payable, short-term liquidity to finance product development, and core capital. Like Poirier, he wanted to return in a low-risk manner.

“When I started digging into Meow, I liked the team and the way they built it,” Picariello said. “I was sold by the fact that BNY Mellon Pershing is in the back end. It’s very easy to move money around, allocate it, and scale it up.” Stocktwits uses an insured deposit sweep program at its bank to protect funds that should remain liquid in the short term. Allocate the rest to Treasuries through Meow based on what the company needs in the next month, three months, or six months.

As the Stocktwits strategy suggests, these accounts are not meant to hold operating cash.

“When you want to get your money, it takes a while,” Graham said. The success of this strategy “depends on your ability to look ahead and know when you need the cash.”

Picariello isn’t worried.

“If a corporate treasurer or CFO has a good handle on upcoming liabilities, they should never have to worry about it taking a day or two to get their money,” Picariello said.

Döpfner said that almost all of the investment products his company works with are highly liquid and that clients can generally access their cash within a business day or two. Brandon Arvanaghi, CEO of Meow, said in an interview in March that it would take one to two business days for clients to receive their funds after selling their Treasury bills.

Business-oriented neobanks have developed their own products that they hope will entice customers to park large amounts there rather than at regular banks. Brex has increased its deposit insurance from $1 million to $6 million since the SVB bankruptcy by using a sweep net. Clients may choose to store funds above that limit in a BNY Mellon money market fund. Mercury has increased the amount of cash it can protect per customer to $5 million in a product called Vault. Deposits in excess of $5 million are placed in a money market fund that is invested almost entirely in US government-backed securities.

Brex and Mercury promoted thousands of new clients since the bank failures in March, although it is a open question as to how many they will keep in the long run. Vesto’s Döpfner and Meow’s Arvanaghi also report a wave of new customers in the wake of those disasters.

“These kinds of alternatives tend to be really effective if you know you won’t need the money for X amount of time and you’ll get a heads up when you need it,” Graham said.

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