Fintech
Senators urge Synapse owners, partners and VC backers to restore customers’ access to their money
A group of senators have joined together to urge Synapse’s owners and banking and fintech partners to “immediately restore Customers’ access to their money.” As part of their demands, the senators implicated both the company’s shareholders and investors as responsible for the loss of customer funds.
In a letter shared publicly On Monday, U.S. Senator Sherrod Brown (D-OH), chairman of the Senate Banking, Housing, and Urban Affairs Committee, joined by Senators Ron Wyden (D-OR), Tammy Baldwin (D-WI), and John Fetterman (D-PA) in pointing out that customers of companies that have partnered with banking startup Synapse have been unable to access their money since mid-May.
The letter was addressed to W. Scott Stafford, chairman and CEO of Evolve Bank & Trust, but was also sent to Synapse’s top investors, as well as the firm’s flagship bank and fintech partners. Recipients include former Synapse CEO Sankaet Pathak; venture capital firms Andreessen Horowitz, Core Innovation Capital, and Trinity Ventures; American Bank; AMG National Trust; Trust and Lineage Bank; and fintech firms Copper, Juno, Mercury, Yieldstreet, and Yotta.
San Francisco-based Synapse operated a service that allowed others (mostly fintechs) to integrate banking services into their offerings. For example, a software provider specializing in payroll for businesses with a large number of 1099 contractors used Synapse to provide an instant payment feature; others used it to offer specialized credit/debit cards. Until last year, it provided those types of services as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury, until Evolve and Mercury decided work directly with each other and exclude Synapse from the role of intermediary.
Synapse has raised a total of just over $50 million in venture capital over its lifetime, including a 2019 $33M Series B Fundraise led by Angela Strange of Andreessen Horowitz. The startup staggered into 2023 with layoffs AND filed for Chapter 11 bankruptcy in April of this year, hoping to sell its assets in a $9.7 million fire sale to another fintech, TabaPay. But TabaPay has walked. It’s not entirely clear why. Synapse has placed a lot of the blame on Evolve and Mercury, both of which have raised their hands and told TechCrunch they aren’t responsible. Synapse CEO and co-founder Sankaet Pathak is no longer responding to requests for comment.
As a result, Synapse was forced to file for Chapter 7 bankruptcy in May, completely liquidating its business. Customers have been cut off ever since.
Government officials have not gone easy on fintech partners, holding them responsible for their role in the situation.
In their letter, the senators said it was the responsibility of all the various actors, including the VCs that had backed them, “to ensure the safety and accessibility of end-user funds.”
They urged them all to work together to immediately make available all customer deposits currently frozen due to the Synapse bankruptcy.
Specifically, they wrote: “You are each responsible for the customers who were locked out of their accounts. Consumer-facing fintech companies marketed their products to the public as safe and reliable alternatives to banks. Thanks to these promises, consumers adopted their products and made deposits through their apps and websites. Venture capital firms funded Synapse without insisting on adequate controls to protect consumers. They were able to profit while Synapse presented itself as a trusted financial infrastructure provider. But they failed to ensure that Synapse could deliver on its commitments. Banks joined Synapse in an effort to find new revenue streams. These partnerships further enabled Synapse to market services ultimately provided by banks.”
The senators also expressed concern and upset about “the potential $65-$96 million gap between what is owed to consumers and the funds held on their behalf by Synapse’s partner banks,” calling it “deeply troubling and completely unacceptable.”
They added: “In due course we will find out who is truly responsible for this mess, but in the meantime the priority must be to restore consumers’ access to all their money.”
In their letter, the senators also attacked the banking-as-a-service model as a whole, saying that Synapse’s failure “exposed the inherent weaknesses of this three-way business model and left American workers and small businesses without access to their money.”
The past week has been full of drama in the world of banking-as-a-service. On June 26, Evolve Bank announced that it had been the victim of a cyber attack and a data breach which could have had repercussions on its partner companies as well. The incident, according to the companyinvolved “the personal data and information of certain customers of retail bank Evolve and customers of financial technology partners” such as Affirm, Mercury, Bilt, Alloy and Stripe. On June 29, fintech company Wise announced that some of its customers’ personal data it may have been stolen in the data breach. Also last week, Thread Bank, a popular partner for BaaS startups like Unit – had hit with coercive measures by the FDIC. In particular, the order issued to Thread, as a publication Payments he stressed, “it is unique in that it explicitly calls upon the bank’s Banking-as-a-Service (BaaS) and Loan-as-a-Service (LaaS) programs.”
TechCrunch reached out to both Evolve Bank and former Synapse CEO Sankaet Pathak for comment. Evolve declined to comment.
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