Hacker News Reader

Comment by gumby | Hacker News Reader

I'm considering using Mercury,* which is allegedly quite popular with startups. They do have all the usual KYC etc of a bank.

Like the ones discussed in the article, Mercury also keeps customer funds in Evolve, among other banks (I guess they claim to spread your money around so you don't have more thank 250K in any one basket). So if I understand correctly, the problem is that I have no visibility to the back end, so if Mercury keels over I'll have trouble getting my money?

* I used SVB for 25 years, but over the past few years their service declined and First Republic poached a lot of their good guys, so I switched to FRB. With a track record like that, perhaps Mercury should reject me?

View on HN

I wondered about this also. Seems like the virtualization that allows for spreading risk also introduces opacity, and risks of its own.

In another article currently being discussed, [1] Mercury has said they may be affected by a breach at Evolve. Yikes.

1: https://news.ycombinator.com/item?id=40916260

"Mercury is a fintech company, not an FDIC-insured bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust ®; Members FDIC. Deposit insurance covers the failure of an insured bank." - from their website

What they're trying to say here is YOU ARE NOT INSURED IN ANY WAY IF MERCURY STEALS YOUR MONEY.

I hope this makes it more clear to you.

But if the money is deposited in an FDIC-insured account and is stolen (by an external hacker or Mercury) isn't it insured against that loss?

No. The depositor has a relationship with Mercury. Mercury has relationships (directly or indirectly) with FDIC insured banks.

Even if one could prove a direct link between the depositor and the FDIC insured bank (making the insurance relevant), the depositor has given Mercury the right to move money in and out of the FDIC insured accounts.

Even if one could prove the money was illegally taken, FDIC insurance is for bank failure. Not for theft.

So then Mercury waving a big flag about how accounts are FDIC-insured is more about them being made whole if one of the banks they contract with goes under, not about ensuring that their customers are ultimately made whole?

The big risk is that Mercury goes out of business. This leaves the bank with money in Mercury accounts but no way to get back to customers. The funds may be considered to be the companies in bankruptcy, when means that customers would have to wait and may not get back all their money.

That’s not really how it works. The keyword to google is “fbo”.

Mercury accounts are DDAs, not FBOs.

The thing you need to Google is "Reg E", which the partner bank (and through them, the fintech program) need to follow. This covers things like losses through card fraud.

In my experience building a fintech on Evolve this description of the relationship is incorrect. My customers have accounts at Evolve directly and are FDIC insured.

As to what that insurance covers that is indeed a different question.

My company uses Brex among others. They do nightly sweeps into a set of partner institutions on your behalf. In theory means you are covered for $250K * number of banks, but the scheme is pretty opaque. It's also untested by a real failure as far as I can tell. The best mitigation is to spread accounts across multiple institutions.

p.s., Brex works fine for day-to-day transactions like AR, AP, and Payroll. We've been quite happy with it, but these days you can't fully trust any financial institution.

Have you considered JPMC?

FRB's tech portfolio and team is now part of them, and a number of SVB accounts ik of move there as well.

Do they offer the sort of cash management that is Mercury's hallmark?

Separately, I have heard a lot of bad things about Chase, and experienced some as well over the years. I'd be hesitant to open up an account there from a customer service perspective, although I assume the deposits would be safe at such a large mega-bank.

I can't speak for Chase. Most businesses ik are using JP Morgan Private Bank and Commercial Banking, and they should be able to use JPM Access

JPMC bough First Republic and already I’m ready to leave. Fees are high and many, and there’s no direct relationship like there was with SVB or FRB. Just a call center.

Were you using FRB for private banking or commercial banking?

Private/Relationship banking might be lackluster with JPM depending on your account size.

Idk if I'd trust a non-FDIC insured bank and any bank that isn't Basel 1/2 compliant so most Neobanks seem too risky. They anyhow prefer to use state chartered banks which tend to be significantly more brittle than nationally chartered banks.

I had both. I switched my personal to the Sanford credit union (I don’t keep a lot of cash in my account anyway).

I’m not sure what to do about my startup’s account though. Chase doesn’t seem to understand startups anyway — you’re a small business or a big business. For the company’s money I want someone who gives a shit.

Makes sense.

For your startup, check out HSBC as well then - a lot of SVB and FRB staff specialized in tech commercial banking switched there as well.

Also maybe try and find where your former SVB banker with whom you had a relationship went - they could help with the transition and give you the care needed.

The marketing I got from Chase after the buyout made me realize they may know what assets they got, but not what customers.

True, I am not wealthy enough for Chase to care, but they send me marcom as if I had zero understanding of finance, to the point of it being offensive.

I am in the process of moving my personal accounts out, to another bank who is willing to put me in the correct cohort (I realized I’m paying them ~$500/year for that btw. Which is very little considering the costs). My mortgage would stay at Chase, because of interest rates, and I’ll have to keep getting marcom that assumes I think of it as a IOU and not a financial instrument.

Reply on news.ycombinator.com