Synapse is a huge black eye on the industry, but let’s not paint all fintech with the same brush

THE collapse of Synapse represents a serious blow to fintech. The horrifying stories coming out about frozen money for mortgage down payments, college funds, teen savings and more are heartbreaking.

People believed that a fintech would manage their money responsibly, that working with a banking partner that had FDIC insurance meant their money was safe. And while this doesn’t seem like an FTX-type debacle where money was taken and used for other things, there was gross negligence here.

I don’t think it’s an exaggeration to say that this is the worst thing to happen to the fintech sector in its entire history. It’s worse than the 2016 “Mother’s Day Massacre” that saw the oust from the CEO of LendingClub, which caused a couple of years long loss for the entire online lending space.

The Synapse fiasco was a slow, 18-month trainwreck that culminated in the bankruptcy of a fintech middleware company and the inability to reconcile the FBO’s accounts. This means that customers of dozens of fintechs no longer have access to their money.

It is difficult to overestimate the gravity of the situation here. The CFPB and other regulators are likely to take action, and we may even see Congressional involvement. We are nowhere near the end of this story.

I’ll let others weigh in on the latest developments (you should follow Jason Mikula Herewhich is always updated on the news), what I want to do today is to remind everyone of the good that fintech has brought.

When I started writing about this industry in 2010, Stripe didn’t exist, Simple was trying to take off as the first digital bank, there was no Chime (Chris Britt was still working at Green Dot), mobile banking didn’t exist yet. one thing, online personal loans were just starting, as were online loans for small businesses.

We’ve come a long way since then.

So, even though fintech will likely be dragged through the mud in the coming weeks and months on Capitol Hill, I wanted to remind everyone how much positive impact fintech has brought to the world.

Here are some of my favorite fintech developments:

1. Mobile banking: Do we really think banks would have full-featured apps today if it weren’t for fintechs pushing the envelope? Their first forays into mobile banking were like the first banking websites, replicating the branch experience on a phone. Today, after following fintech leaders like Chime, PayPal, CashApp, SoFi, and MoneyLion, all major banks have excellent mobile apps.
2. Buy Now, Pay Later – Whatever you think of BNPL, it has taken the world by storm over the past decade. Consumers love it and millions of people use this payment method every month. Many banks are now getting involved due to this consumer demand, but once again fintech has made it possible.
3. Access to Earned Salary – We still live in the anachronistic world of weekly, semi-annual or monthly salary payments. In a world of APIs and everything on-demand, this is silly. EWA fintechs have addressed this problem, and this may be the most important financial health innovation of the last decade, as millions of people have avoided expensive payday loans simply by being able to access their earned wages.
4. Cash Flow Underwriting: I have been closely following innovation in the lending industry for 14 years now, and I think cash flow underwriting is the most important development we have made for financial inclusion. Being able to review detailed banking history gives more people access to credit and better prices for thin file consumers. It’s not mainstream yet but it will be soon.
5. Free Stock Trading – The retail investor frenzy we have seen since the start of the pandemic would not have been possible without the advent of free stock trading. Once again, fintech led the way and all traditional players eventually followed suit. This has opened up stock investing to a much larger slice of the market.
6. Digital identity verification – Much of today’s world of digital finance would not be possible without robust identity verification and fraud prevention systems. Being able to open an account and start moving money relies on sophisticated digital systems that can authenticate a device and ensure, with remarkable accuracy, that the user is not a criminal.
7. Spend Management: This is a category that didn’t really exist ten years ago. But expense management for businesses was a pain point until the advent of Brex, Ramp and Navan. With a fanatical focus on user experience, these companies have repeatedly become unicorns and have saved companies thousands of hours in the process.
8. Real-Time Payments – What started with PayPal, then Venmo, Zelle, and CashApp, led to consumer expectations that payments could be free and instant. While true instant payments took a long time to develop in the United States, fintech here laid the foundation that led to the creation of RTP and FedNow.
9. Cross-border payments – Staying in the payments space, the rise of Wise, Airwallex and Payoneer has completely disrupted the traditional international money transfer market. These companies have eliminated billions of dollars of costs from the system by making payments around the world quickly and reliably.
10. Small Business Capital – After the financial crisis, banks all but exited the small business lending market. This has led to the emergence of companies like OnDeck, Kabbage, BlueVine, and Funding Circle that have been able to fill this gap. Today, established tech companies like PayPal, Square, and Shopify are some of the biggest lenders for small businesses. Banks continue to struggle to serve this space.

These are just ten innovations. I admit there are dozens that could have easily made it onto this list. My purpose here is not to create a definitive list of the top 10 fintech innovations but, instead, to remind everyone that finance today would look very different without the rise of fintech.

None of this is intended to downplay the harm done to consumers as a result of Synapse’s collapse. But it’s a reminder not to throw the baby out with the bathwater. Fintech has done, and will continue to do, great things for consumers and businesses.

• Peter Renton is president and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and is the author and creator of the Individual fintech podcastthe first and longest running fintech interview series.

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