Synapse’s collapse has frozen nearly $160M from fintech users — here’s how it happened
Reading Time: 3 minutesThe collapse and bankruptcy of BaaS fintech Synapse has revealed how treacherous things are for the often-interdependent fintech world when one key player hits trouble.
Synapse operated a service that allowed others (mainly fintechs) to embed banking services into their offerings. For instance, a software provider that specialized in payroll for 1099 contractor-heavy businesses used Synapse to provide an instant payment feature; others used it to offer specialized credit/debit cards.
The San Francisco-based startup raised a total of just over $50 million in venture capital in its lifetime, including a 2019 $33 million Series B raise led by Andreessen Horowitz’s Angela Strange. Synapse wobbled in 2023 with layoffs and filed for Chapter 11 in April of this year, hoping to sell its assets in a $9.7 million fire sale to another fintech, TabaPay. But TabaPay walked.
The result was that Synapse was forced to liquidate entirely under Chapter 7 and a lot of other fintechs such as Juno, Yotta and Yieldstreet — and their customers — are paying the price for Synapse’s demise.
The debacle has left observers questioning the banking-as-a-service concept and digital banking as a whole, considering that millions of consumers with nearly $160 million in deposits remain unable to access their funds.
Here is a timeline of Synapse’s troubles and the ongoing impact it is having on banking consumers.
2024
Nearly $160 million in funds still frozen
July 7: Fintech Business Weekly reports that a recent ‘status conference in the ongoing Synapse bankruptcy didn’t offer much hope to end users whose funds were still frozen, with efforts to reconcile and release the remaining funds, approximately $158.6 million, appearing to slow.’ This means that about $158.6 million was still owed to end users. However, there was an estimated $65 million to $95 million in funds that were missing.
Senators urge Synapse and its partners and backers to restore customers’ access to their money
July 1: A group of senators banded together to urge Synapse’s owners and bank and fintech partners to ‘immediately restore customers’ access to their money.’ As part of their demands, the senators implicated both the partners and the venture investors of the company as being responsible for missing customer funds.
Synapse CEO moves on to starting another company
June 12: Synapse’s CEO Sankaet Pathak has reportedly already raised $10 million for a new robotics startup even while questions remained on the whereabouts of $85 million in Synapse’s customer savings.
Fallout continues, more fintechs and millions of consumers affected
May 25: Based on Synapse’s filings, as many as 100 fintechs and 10 million end customers were potentially impacted by the company’s collapse by the end of May. For instance, funds at crypto app Juno and banking platform Yotta were also impacted by Synapse’s collapse. Meanwhile, Mainvest, a fintech lender to restaurant businesses, said it was actually shutting down as a result.
U.S. Trustee pushes for Chapter 7
May 16: A United States trustee filed an emergency motion to convert Synapse’s debt reorganization Chapter 11 bankruptcy into a liquidation Chapter 7. The trustee said that Synapse had ‘grossly’ mismanaged its estate so that losses were continuing with little ‘reasonable likelihood of reorganization’ that would allow the company to emerge on the other side and carry on.
Customer teen banking startup Copper discontinues its banking operations
May 13: Synapse customer teen banking startup Copper had to abruptly discontinue its banking deposit accounts and debit cards as a result of Synapse’s difficulties. That left an unknown number of consumers, mostly families, without access to the funds they had trustingly deposited into Copper’s accounts.
Sale of assets called off
May 9: TabaPay said it had abandoned its plans to purchase Synapse’s assets. There was lots of finger-pointing when that deal dissolved. Synapse’s CEO made accusations that the problem was banking partner Evolve Bank & Trust. And Evolve denied those charges, saying it was not involved, and not to blame. Meanwhile, another player in the saga, Mercury, said Synapse’s allegations had ‘no merit.’
Synapse files for Chapter 11 bankruptcy, assets to be sold off for $9.7 million
April 22: Synapse filed for Chapter 11 bankruptcy and said at that time that its assets would be acquired by instant payments company TabaPay, pending bankruptcy court approval. (Again, TabaPay would walk away from the deal a couple weeks later.)
2023
Synapse lays off staff, reports of tension with partner Evolve Bank arise
October 13: Evolve Bank & Trust and startup digital bank Mercury ended their respective relationships with Synapse and work directly with each other. Evolve and Synapse addressed the brouhaha here.
Ref: techcrunch
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