The collapse and bankruptcy of BaaS fintech Synapse has sent shockwaves throughout the fintech industry, highlighting the risks of interdependency and the potential impact of one key player’s failure. Synapse provided a service that allowed other fintechs to integrate banking services into their own offerings. This included features like instant payment capabilities and specialized credit/debit cards. However, despite raising over $50 million in venture capital, Synapse began to wobble in 2023, leading to layoffs and ultimately filing for Chapter 11 bankruptcy in April 2024.
One of the major consequences of Synapse’s demise is the inability of millions of consumers to access their funds. Approximately $160 million in deposits remains frozen, leaving customers in a difficult position. Efforts to reconcile and release these funds have been slow, with an estimated $65 to $95 million still missing. In response, a group of senators has urged Synapse’s owners, as well as its bank and fintech partners, to restore customer access to their money. This situation has raised questions about the viability of the banking-as-a-service concept and digital banking as a whole.
The fallout from Synapse’s collapse has had far-reaching implications. As many as 100 fintechs and 10 million end customers have been affected by the company’s demise. For example, crypto app Juno and banking platform Yotta have also been impacted. Additionally, fintech lender Mainvest has announced its shutdown as a result of the situation.
The troubles faced by Synapse have led to legal action. The United States trustee filed an emergency motion to convert the company’s Chapter 11 bankruptcy into a liquidation Chapter 7. This move came after allegations of mismanagement and a lack of reasonable likelihood for reorganization. Furthermore, Synapse’s customers have been directly affected. Copper, a teen banking startup that relied on Synapse’s services, had to discontinue its banking operations, leaving families without access to their deposited funds.
The situation also saw a failed attempt to sell off Synapse’s assets. Instant payments company TabaPay initially agreed to acquire the assets for $9.7 million, pending bankruptcy court approval. However, TabaPay eventually walked away from the deal, leading to finger-pointing and accusations between Synapse’s CEO, banking partner Evolve Bank & Trust, and other involved parties.
The troubles faced by Synapse began earlier in 2023 with layoffs and reports of tension between the company and partner Evolve Bank. This eventually led to the termination of their relationship. Synapse confirmed the layoffs of 86 employees in October 2023, citing the impact of macroeconomic conditions on clients and platforms.
Overall, the collapse of Synapse serves as a cautionary tale for the fintech industry. It highlights the potential risks of interdependency and the need for robust risk management practices. The inability of millions of customers to access their funds has raised concerns about the reliability of digital banking and the banking-as-a-service model. Moving forward, stakeholders in the industry will need to address these issues to restore trust and ensure the stability of the fintech ecosystem.
