When Natasha Craft first got a\u00a0Yotta\u00a0banking account in 2021, she loved using it so much she told her friends to sign up.<\/p>\n
The app made saving money fun and easy, and Craft, a now 25-year-old\u00a0FedEx\u00a0driver from Mishawaka, Indiana, was busy getting her financial life in order and planning a wedding. Craft had her wages deposited directly into a Yotta account and used the startup\u2019s debit card to pay for all her expenses.<\/p>\n
The app \u2014 which gamifies personal finance with weekly sweepstakes and other flashy features \u2014 even occasionally covered some of her transactions.<\/p>\n
\u201cThere were times I would go buy something and get that purchase for free,\u201d Craft told CNBC.<\/p>\n
Today, her entire life savings \u2014 $7,006 \u2014 is locked up in a complicated dispute playing out in bankruptcy court, online forums like\u00a0Reddit\u00a0and regulatory channels. And Yotta, an array of other startups and their banks have been caught in a moment of reckoning for the fintech industry.<\/p>\n
For customers, fintech promised the best of both worlds: The innovation, ease of use and fun of the newest apps combined with the safety of government-backed accounts held at real banks.<\/p>\n
The startups prominently\u00a0displayed\u00a0protections afforded by the Federal Deposit Insurance Corporation, lending credibility to their novel offerings. After all, since its 1934 inception, no depositor \u201chas ever lost a penny of FDIC-insured deposits,\u201d according to the agency\u2019s\u00a0website.<\/p>\n
But the widening\u00a0fallout\u00a0over the collapse of a fintech middleman called Synapse has revealed that promise of safety as a mirage.<\/p>\n
Starting May 11, more than 100,000 Americans with\u00a0$265 million\u00a0in deposits were locked out of their accounts. Roughly 85,000 of those customers were at Yotta alone,\u00a0according\u00a0to the startup\u2019s co-founder Adam Moelis.<\/p>\n
CNBC reached out to fintech customers whose lives have been upended by the Synapse debacle.<\/p>\n
They come from all walks and stages of life, from Craft, the Indiana FedEx driver; to the owner of a chain of preschools in Oakland; a talent analyst for\u00a0Disney\u00a0living in New York City; and a computer engineer in Santa Barbara. A high school\u00a0teacher\u00a0in Maryland. A parent in Bristol, Connecticut, who opened an account for his daughter. A social worker in Seattle saving up for dental work after Adderall abuse ruined her teeth.<\/p>\n
Since Yotta, like most popular fintech apps, wasn\u2019t itself a bank, it relied on partner institutions including Tennessee-based\u00a0Evolve Bank & Trust\u00a0to offer checking accounts and debit cards. In between Yotta and Evolve was a crucial middleman, Synapse, keeping track of balances and monitoring fraud.<\/p>\n
Founded in 2014 by a first-time entrepreneur named\u00a0Sankaet Pathak, Synapse was a player in the \u201cbanking as a\u00a0service\u201d segment alongside companies like Unit and Modern Treasury. Synapse helped customer-facing startups like Yotta quickly access the rails of the regulated banking industry.<\/p>\n
It had contracts with 100 fintech companies and 10 million end users, according to an April court filing.<\/p>\n
Until recently, the BAAS model was a growth engine that seemed to benefit everybody. Instead of spending years and millions of dollars trying to acquire or become banks, startups got quick access to essential services they needed to offer. The small banks that catered to them got a source of deposits in a time dominated by giants like\u00a0JPMorgan Chase.<\/p>\n
But in May, Synapse, in the throes of bankruptcy, turned off a critical system that Yotta\u2019s bank used to process transactions. In doing so, it threw thousands of Americans into financial limbo, and a growing segment of the fintech industry into turmoil.<\/p>\n
\u201cThere is a reckoning underway that involves questions about the banking-as-a-service model,\u201d said\u00a0Michele Alt, a former lawyer for the Office of the Comptroller of the Currency and current partner at consulting firm Klaros Group. She believes the Synapse failure will prove to be an \u201caberration,\u201d she added.<\/p>\n
The most popular finance apps in the country, including\u00a0Block\u2019s\u00a0Cash App,\u00a0PayPal\u00a0and\u00a0Chime\u00a0partner with banks instead of owning them. They account for 60% of all new fintech account openings, according to data provider Curinos. Block and PayPal are publicly traded; Chime is expected to launch an IPO next year.<\/p>\n
Block, PayPal and Chime didn\u2019t provide comment for this article.<\/p>\n
While industry experts say that those firms have far more robust ledgering and daily reconciliation abilities than Synapse, they may still be riskier than direct bank relationships, especially for those relying on them as a primary account.<\/p>\n
\u201cIf it\u2019s your spending money, you need to be dealing directly with a bank,\u201d\u00a0Scott Sanborn, CEO of\u00a0LendingClub, told CNBC. \u201cOtherwise, how do you, as a consumer, know if the conditions are met to get FDIC coverage?\u201d<\/p>\n
Sanborn knows both sides of the fintech divide: LendingClub started as a fintech lender that partnered with banks until it\u00a0bought\u00a0Boston-based Radius in early 2020 for $185 million, eventually becoming a fully regulated bank.<\/p>\n<\/p>\n
When Natasha Craft first got a\u00a0Yotta\u00a0banking account in 2021, she loved using it so much she told her friends to sign up. The app made saving money fun and easy, and Craft, a now 25-year-old\u00a0FedEx\u00a0driver from Mishawaka, Indiana, was busy getting her financial life in order and planning a wedding. Craft had her wages deposited […]<\/p>\n","protected":false},"author":0,"featured_media":5763,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-5762","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\/5762","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=5762"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/5762\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/5763"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=5762"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=5762"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=5762"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}