The collapse and bankruptcy of BaaS fintech Synapse has sent shockwaves throughout the fintech industry, highlighting the risks of interdependence in the digital banking world. Synapse provided a service that allowed other fintechs to integrate banking services into their products, enabling features like instant payments and specialized credit/debit cards. Despite raising over $50 million in venture capital, including a $33 million Series B round led by Andreessen Horowitz, Synapse faced difficulties in 2023, resulting in layoffs and the subsequent filing for Chapter 11 bankruptcy.
One of the major consequences of Synapse’s downfall is the frozen funds of millions of consumers, amounting to nearly $160 million. Efforts to reconcile these funds have been slow, leaving customers unable to access their money. This has led to growing concerns about the entire banking-as-a-service concept and digital banking as a whole.
In July 2024, a group of senators called on Synapse’s owners, bank partners, and venture investors to restore customers’ access to their money. However, Synapse’s CEO, Sankaet Pathak, had already moved on to starting a new robotics startup, raising $10 million in funding. The whereabouts of $85 million in customer savings remained unknown.
The fallout from Synapse’s collapse continued to affect more fintechs and millions of consumers. By May 2024, it was estimated that up to 100 fintechs and 10 million end customers had been impacted. Companies like crypto app Juno, banking platform Yotta, and fintech lender Mainvest suffered as a result. Copper, a teen banking startup that was a customer of Synapse, had to discontinue its banking operations, leaving families without access to their deposited funds.
Efforts to salvage the situation proved futile. TabaPay, initially set to acquire Synapse’s assets for $9.7 million, backed out of the deal. Synapse’s CEO blamed banking partner Evolve Bank & Trust, while Evolve denied any involvement. Another player in the saga, Mercury, dismissed Synapse’s allegations. Ultimately, Synapse was forced to file for Chapter 7 bankruptcy, leading to the liquidation of the company.
The troubles for Synapse began in 2023 when it laid off staff and faced tension with partner Evolve Bank & Trust. The company cited the impact of macroeconomic conditions on its clients and platforms as the reason for the layoffs. This came just months after the company had already let go of 18% of its workforce. Despite these challenges, Synapse managed to secure a $33 million Series B funding round in 2019.
The collapse of Synapse serves as a cautionary tale for the fintech industry, highlighting the risks and potential consequences of relying heavily on interconnected players in the digital banking ecosystem. The frozen funds and disrupted services have left customers and businesses in a difficult position, raising questions about the stability and reliability of banking-as-a-service models. Moving forward, stakeholders in the fintech industry will need to reassess their partnerships and risk management strategies to ensure the safety and accessibility of customer funds.
