A dispute between a fintech startup and its banking partners has ensnared potentially millions of Americans, leaving them without access to their money for nearly two weeks, according to recent court documents.<\/p>\n
Since last year,\u00a0Synapse\u00a0\u2014 an Andreessen Horowitz-backed\u00a0startup\u00a0that serves as a middle-man between customer-facing fintech brands and FDIC-backed banks \u2014 has had disagreements with several of its partners about how much in customer balances it owed.<\/p>\n
The situation deteriorated in April after Synapse declared bankruptcy following the exodus of several key partners. On May 11, Synapse cut off access to a technology system that enabled lenders, including\u00a0Evolve Bank & Trust, to process transactions and account information, according to the filings.<\/p>\n
That has left users of several fintech services stranded with no access to their funds, according to testimonials filed this week in a California bankruptcy court.<\/p>\n
One customer, a Maryland teacher named Chris Buckler, said in a May 21 filing that his funds at crypto app\u00a0Juno\u00a0were locked because of the Synapse bankruptcy.<\/p>\n
\u201cI am increasingly desperate and don\u2019t know where to turn,\u201d Bucker wrote. \u201cI have nearly $38,000 tied up as a result of the halting of transaction processing. This money took years to save up.\u201d<\/p>\n
Until recently, Synapse, which calls itself the biggest \u201cbanking as a service\u201d provider, helped a wide swath of the U.S. fintech universe provide services like checking accounts and debit cards. Former partners included\u00a0Mercury,\u00a0Dave\u00a0and Juno, well-known fintech firms that catered to segments including startups, gig workers and crypto users.<\/p>\n
Synapse had contracts with 20 banks and 100 fintechs, resulting in about 10 million end users, according to an April filing from founder and CEO\u00a0Sankaet Pathak.<\/p>\n
Pathak didn\u2019t immediately return an email seeking comment. A spokesman for Evolve declined to comment, instead pointing to a\u00a0statement\u00a0on the bank\u2019s website that read, in part:<\/p>\n
\u201cSynapse\u2019s abrupt shutdown of essential systems without notice and failure to provide necessary records needlessly jeopardized end users by hindering our ability to verify transactions, confirm end user balances, and comply with applicable law,\u201d the bank said.<\/p>\n
It is unclear why Synapse switched the system off, and an explanation couldn\u2019t be found in filings.<\/p>\n
Another customer, Joseph Dominguez of Sacramento, California,\u00a0told\u00a0the bankruptcy court on May 20 that he had more than $20,000 held up in his\u00a0Yotta\u00a0fintech account.<\/p>\n
\u201cWe are scared that money will be lost if Synapse can not provide ledgers and documents to Evolve or Yotta to prove we are the legitimate owners,\u201d Dominguez wrote. \u201cWe don\u2019t know where our direct deposit has gone, we don\u2019t know where our pending withdrawals are currently held.\u201d<\/p>\n
The freeze-up of customer funds exposes the vulnerabilities in the banking as a service, or BAAS, partnership model and a possible blind spot for regulatory oversight.<\/p>\n
The BAAS model, used most notably by the pre-IPO fintech firm\u00a0Chime, allows Silicon Valley-style startups to tap the abilities of small FDIC-backed banks. Together, the ecosystem helped these companies compete against the giants of American banking.<\/p>\n
Customers mistakenly believed that because funds are ultimately held at real banks, they were as safe and available as any other FDIC-insured accounts, said\u00a0Jason Mikula, a consultant and newsletter writer who has tracked this case closely.<\/p>\n
\u201cThis is 10 million-plus people who can\u2019t pay their mortgages, can\u2019t buy their groceries \u2026 This is another order of disaster,\u201d Mikula said.<\/p>\n
Regulators have yet to take a role in the dispute, partly because the underlying banks involved haven\u2019t failed, the point at which the FDIC would usually intervene to make customers whole, Mikula added.<\/p>\n
The FDIC and Federal Reserve didn\u2019t immediately return calls seeking comment.<\/p>\n
In pleading with the judge in this case,\u00a0Martin Barash, to help the impacted customers, Buckler noted in his testimonial that while he had other resources besides the locked account, others are not as lucky.<\/p>\n
\u201cSo far the federal government is not willing to help us,\u201d Buckler wrote. \u201cAs you heard, there are millions affected who are in far worse straits.\u201d<\/p>\n
Reached by phone on Wednesday, Buckler said he had one message for Americans:<\/p>\n
\u201cI want to make people aware: Yeah, your money might be safe at the bank, but it is not safe if the fintech or the processor fails,\u201d he said. \u201cIf this is another FTX, if they were doing funny business with my money, then what?\u201d<\/p>\n<\/p>\n
A dispute between a fintech startup and its banking partners has ensnared potentially millions of Americans, leaving them without access to their money for nearly two weeks, according to recent court documents. Since last year,\u00a0Synapse\u00a0\u2014 an Andreessen Horowitz-backed\u00a0startup\u00a0that serves as a middle-man between customer-facing fintech brands and FDIC-backed banks \u2014 has had disagreements with several […]<\/p>\n","protected":false},"author":0,"featured_media":4804,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-4803","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/4803","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=4803"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/4803\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/4804"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=4803"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=4803"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=4803"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}