Senators Urge Synapse and Partners to Restore Customer Access to Funds
A group of senators, including U.S. Senator Sherrod Brown, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, has called on Synapse’s owners, as well as its bank and fintech partners, to immediately restore customers’ access to their money. The senators have implicated both the partners and investors of the banking-as-a-service startup in the missing customer funds.
Customers of companies that partnered with Synapse have been unable to access their money since mid-May. In a public letter addressed to W. Scott Stafford, president and CEO of Evolve Bank & Trust, the senators highlighted the issue and sent copies to major investors in Synapse, as well as the company’s principal bank and fintech partners. The recipients include former Synapse CEO Sankaet Pathak, venture firms Andreessen Horowitz, Core Innovation Capital, and Trinity Ventures, and various banks and fintech companies.
Synapse, based in San Francisco, provided a service that allowed fintechs to embed banking services into their offerings. However, after Evolve Bank and Mercury decided to work directly with each other and bypass Synapse as a middleman, the company faced financial troubles. It filed for Chapter 11 bankruptcy in April of this year and eventually had to file for Chapter 7 bankruptcy in May, leading to the freezing of customer accounts.
The senators emphasized that all players involved, including venture capitalists, should take responsibility for ensuring the safety and accessibility of customer funds. They called on them to work together to release the frozen customer deposits. The senators also expressed their concern over the potential shortfall of funds between what customers are owed and the funds held by Synapse’s partner banks. They deemed this situation deeply troubling and unacceptable.
Furthermore, the senators criticized the banking-as-a-service model as a whole, stating that the Synapse bankruptcy has exposed the inherent weaknesses of this tri-party business model. They argued that hardworking Americans and small businesses have been deprived of access to their own money as a result.
The banking-as-a-service industry has seen significant drama in recent weeks. Evolve Bank announced that it experienced a cyberattack and data breach, potentially affecting its partner companies such as Affirm, Mercury, Bilt, Alloy, and Stripe. Wise also reported that some of its customers’ personal data may have been stolen in the breach. Additionally, Thread Bank, a popular partner to BaaS startups, faced enforcement action from the FDIC.
This situation highlights the need for robust controls and safeguards within the banking-as-a-service sector to protect customers’ funds and personal information. It also underscores the importance of holding all parties accountable for their role in ensuring the safety and accessibility of customer funds.