Fintech
Synapse Collapse Frozen Nearly $160M of Fintech Users: Here’s How It Happened
The collapse and failure of BaaS fintech Synapse has revealed how dangerous things can be for the often interdependent fintech world when a key player runs into trouble.
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.
The San Francisco-based startup 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.
The result was that Synapse was forced to shut down entirely under Chapter 7, and many other fintechs like Juno, Yotta, and Yieldstreet, as well as their customers, are paying the price for Synapse’s failure.
The disaster left observers speechless question the entire concept of banking-as-a-service and digital banking as a wholewhereas millions of consumers with nearly $160 million in deposits still cannot access their funds.
Here’s a timeline of Synapse’s issues and the impact they’re having on banking consumers.
2024
Nearly $160 million in funds still frozen
July 7: Fintech Business Weekly reports that a recent “state conference Synapse’s ongoing bankruptcy did not offer much hope to end users whose funds were still frozen, with efforts to reconcile and free up the remaining funds, about $158.6 million, appearing to be slowing down.” This means that about $158.6 million was still owed to end users. However, there were about $65 million to $95 million in missing funds.
Senators Urge Synapse, Its Partners and Supporters to Restore Customers’ Access to Their Money
July 1st: 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.” Among their demands, the senators held both the company’s shareholders and venture capitalists responsible for the loss of client funds.
Synapse CEO Starts Another Company
June 12th: Synapse CEO Sankaet Pathak has reportedly already raised $10 million for a new robotics startup even while the questions remained on the fate of Synapse customers’ $85 million in savings.
The fallout continues, increasingly affecting fintechs and millions of consumers
May 25: Based on documents filed by Synapse, up to 100 fintechs and 10 million end customers were potentially affected by the company’s collapse by the end of May. For example, the funds of cryptocurrency app Juno and banking platform Yotta were also affected by the collapse of Synapse. Meanwhile, Main investmenta fintech lender for restaurant businesses, said it would effectively close its doors because of this.
US Bankruptcy Trustee Pushes for Chapter 7
May 16: A U.S. bankruptcy trustee has filed an emergency motion to convert Synapse’s Chapter 11 debt reorganization into a liquidation Chapter 7The trustee said Synapse had “grossly” mismanaged its assets, so much so that losses continued with little “reasonable likelihood of reorganization” that would allow the company to emerge on the other side and continue.
Teen Banking Startup Copper Shuts Down Its Banking Operations
May 13th: Teen banking startup Copper, a Synapse customer, had to abruptly discontinue your bank deposit accounts and debit cards as a result of Synapse’s difficulties. This left an unknown number of consumers, mostly families, without access to the funds they had trusted to deposit into Copper’s accounts.
The sale of the goods has been cancelled
May 9th: TabaPay said it had he abandoned his plans to buy Synapse’s assets. There were many accusations when the deal unraveled. Synapse’s CEO made accusations that banking partner Evolve Bank & Trust was the problem. And Evolve denied those accusations, saying it was not involved and not to blame. Meanwhile, another protagonist in the saga, Mercury, said that Synapse’s accusations “had no merit.”
Synapse Files for Chapter 11 Bankruptcy, Assets to be Sold for $9.7M
April 22: Synapse filed for Chapter 11 bankruptcy and declared at that time that its assets would be acquired by instant payments company TabaPaypending bankruptcy court approval. (Again, TabaPay would abandon the deal a couple of weeks later.)
2023
Synapse lays off staff, reports of tensions with partner Evolve Bank emerge
October 13: Evolve Bank & Trust and digital startup Mercury have ended their relationships with Synapse and are working directly with each other. Evolve and Synapse have faced controversy Here.
October 6th: Synapse has confirmed that it has fired 86 people, or about 40% of the company. This came just four months after the company laid off 18% of its workforce, as “current macroeconomic conditions” began to impact its customers and platforms, impacting its projected growth. In 2019, TechCrunch reported on the company $33M Series B Fundraise led by Andreessen Horowitz after the rebranding of SynapseFi.
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