March of 2023 has definitely been a month of peaks and valleys for eCommerce and small business owners, as they navigate declining consumer demands (as discussed in our last blog) and now the ripple effect of Silicon Valley Bank (SVB) collapsing.

As we have read over the past few weeks – SVB framed its actions as a necessary repositioning due to constantly rising interest rates and startup funding levels falling in 2022. Simply put – the bank had overextended its investments in comparison to the lower than estimated deposits coming in. Then as
word began to travel, many were advised to pull their cash from the bank sending it into a tailspin.

Traditionally, eCommerce businesses require much smaller amounts of venture capital funding than a SaaS startup, so it was thought that many eCommerce businesses would not be impacted by the US government shutdown of SVB because they had their money in other banks.

Unfortunately, not all of eCommerce was immune to this collapse.

Payment and Payroll Complications

Merchants on Etsy were impacted immediately by delayed payments due to the SVB collapse. Of its 5.4 million accounts, roughly 2700 merchants were impacted when Etsy had to delay the remaining account payments due to the collapse. Most were paid on the following Monday, either by their SVB account or
from other payment partners, but it left many questioning how delicate the system is?

Out of caution, many merchants quickly shifted their accounts to vacation mode to freeze purchases and minimize financial losses to allow Etsy the opportunity to sort everything out. Many merchants complained that they wish there was more transparency from Etsy on how it plans to help prevent this in the future, but several are still waiting for the original missed payments to clear in their accounts.

Other startups got ahead of the issue by launching a sale online to facilitate an increase in sales that would be deposited into a different account with a different bank, ultimately allowing the company to have cash to pay overhead expenses and payroll.

Cash is King

Watching the impact SVB has had on eCommerce through thousands of marketplace sellers and small businesses who supply retailers still ties back to the top lesson – cash is still king.

While many have quickly begun diversifying assets across multiple banks of different sizes, others are thankful for their diversification so that they were not forced to scramble for funds to purchase new inventory or cover overhead expenses like payroll or warehouse payments.
Should this ripple continue further into 2023 and impact other banks or marketplaces, it will be more critical than ever for eCommerce businesses to be as efficient and lean as possible.

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