13 March 2023
Following last week’s fallout from the failure of Silicon Valley Bank, known as the “Startup Bank,” yet another bank has failed, along with the stocks of other banks. This begs the question of what the potential effect, if any, it will have on points and miles.
It’s bad news for those who previously held their money at SVB. Their third-party processor no longer has the capability to process payments, preventing the bank and, thus, consumers from temporarily accepting payments and therefore processing credit card transactions routed through SVB.
This is certainly alarming and a potential future case study in the business of deregulation and lack of oversight with younger industries such as startups and cryptocurrency. However, it’s important to remember that most people do not process credit card transactions through the banks in question.
Sheila Bair, former chair of the Federal Deposit Insurance Corporation, told The New York Times that she didn’t “think that this is an issue for the big banks — that’s the good news, they’re diversified.”
Credit card transactions, for most people, do not occur through the failed banks. Most transactions for everyday credit card users remain routed through banks strictly regulated and protected by the United States Federal Reserve System.
This is evidenced by the flattening out of JPMorgan Chase & Co., Wells Fargo & Company and Citigroup Inc. shares on Friday following just a slight slump in the days prior, per the New York Times.
The Times cites more “stringent” capital requirements, “far broader deposit bases than banks like Silicon Valley, which do not attract masses of retail customers,” and a risk-averse approach to the assets in question, like crypto, as the reason.
There have been impacts to a few programs points and miles enthusiasts may know:
Plastiq
Plastiq has temporarily suspended all payments to all vendors in the U.S., plus some other countries, following SVB’s collapse. Since Plastiq relied on SVB to process payments, they are no longer to process payments. Plastiq appears to be attempting to set up an agreement with another processor.
As first reported by Frequent Miler, Plastiq users are receiving an error message upon attempting to schedule payment:
We are experiencing a processing error at this time and are temporarily suspending payments to vendors in the US and a few other countries. We are working on this issue and hope to be able to process this payment again soon. For now, we suggest sending your payment via an alternative means.
Brex
Following Plastiq’s hard stop, various outlets, including CNBC, documented portfolio companies following the advice of their venture capital firms to head to an alternate payment processor named Brex to find a new home for their “billions of dollars” after withdrawing funds from SVB.
Brex is a Fintech startup out of, you guessed it, San Francisco, known within the points and miles world for offering a 110,000-point sign-on bonus for new small-business checking accounts in 2021, according to Award Wallet.
Additionally, Brex offers a no-annual free rewards card linked to the aforementioned checking accounts, offering 8 points per dollar on ride-hailing services, 5 points per dollar on travel and 4 points per dollar on restaurants.
Unfortunately, back in August 2022, Brex closed all small business accounts.
Now, Brex has dramatically devalued its reward points, specifically decreasing cash and crypto redemptions to 0.6 cents per dollar from cash back instead of 1 cent per point in value.
The big (negative) news for points and miles enthusiasts is that Brex has decreased its Brex Rewards point transfer rates to airline partners by more than 40%. Brex Rewards points no longer transfer to its seven airline partners at a 1:1 transfer ratio. You now need to transfer 1,670 Brex Rewards points for 1,000 airline miles.
This means that Brex accountholders have to transfer 67% more Brex Rewards points to receive the same number of airline miles while slashing cash and crypto to 0.6 cents per point for a 40% devaluation overall for Brex Rewards point redemption options, as summarized by Award Wallet.
For the foreseeable future, you can get the best value for your Brex points by using them at 1-cent-per-point value for bookings through the travel portal and gift card redemptions.
The information for the Brex card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Bottom line
As of March 13, three banks in the startup space have failed to stay afloat, the third being Silvergate, which actually fell before SVB on March 8, notable for its network allowing crypto transfer in real-time.
Consequently, the FDIC took control of SVB’s assets on Friday, marking the second-largest bank failure in U.S. history and the largest since the 2008 global financial crisis.
“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry,” the FDIC, Federal Reserve and Treasury Department said in a joint statement on March 12. “Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”
While the effect on points and miles thus far has been minimal, you cannot use Plastiq right now for credit card transactions.
What’s perhaps more concerning is the devaluation of Brex Rewards points, which could set a precedent for devaluing credit card points in the future.
Related reading:
What the Credit Card Competition Act of 2022 could mean for your rewards if passed
What’s the difference between a credit card network and issuer?