Fintech
Synapse Failure Raises Concerns in Fintech Industry
Synapse, a well-known fintech company with a decade of history, has filed for bankruptcy. This has left many customers stranded without access to their funds and has caused major disruptions in the banking industry. As a result, concerns about the longevity and regulatory compliance of the banking-as-a-service model are widespread in the fintech industry. This incident highlights the risk customers face when entrusting their assets to emerging online-based financial services.
With a significant amount of money still missing and only fragments of the funds held by some U.S. banks, partnerships between venture-backed startups and FDIC-backed banks are increasingly under scrutiny. In light of the Synapse collapse, authorities are looking into the loopholes that allowed so much money to vanish. This incident highlights the importance of implementing strong financial safeguards, especially when volatile startups interact with FDIC-insured banks.
Prompted by the Synapse fiasco, regulators are encouraging banks to strengthen their governance systems when working with fintech companies. They point out that weak governance systems increase risks and potential losses, and urge banks to carefully analyze and monitor their relationships with fintech companies. This would help mitigate any future threats and bolster their reputation and trustworthiness.
Synapse Failure Exposes Vulnerabilities of FinTech
Synapse rose to prominence after the 2008 financial crisis by innovating traditional operations and offering essential services through a streamlined digital platform. Through partnerships with FDIC-approved banks, Synapse was able to provide direct access to fintechs like Mercury, Dave, and Juno, thereby increasing deposits and fee revenue for their conventional banking allies. Likewise, their services attracted fintech customers nationwide.
After unsuccessful discussions with Evolve Bank and Trust, a partner bank, Synapse Network cut off Evolve’s access, freezing accounts of customers associated with Evolve and other affiliated banks. This sudden disruption of banking services led to widespread frustration and uncertainty. The emerging crisis triggered awareness of the inherent risks of over-reliance on digital platforms.
In the wake of the bankruptcy, strained relations have led to allegations between Synapse and Evolve Bank and Trust. Synapse CEO Sankaet Pathak has alleged that Evolve has intentionally slowed down refunds of customer funds. In contrast, Evolve management refutes these allegations, saying any delays are due to procedural issues arising from the bankruptcy. Amid these allegations, customers are left anxious about the uncertainty of the situation. The promise of resolution remains, despite the complex nature of the situation and the large number of affected customers.