Bill Harris (left) is the founder and CEO of Evergreen Money. “If I took every bank account in the country and put 5 percent in them,” he said, “that would be another $103 billion in people’s money.”

Tony Avelar/Bloomberg

The messy collapse of middleware vendor Synapse Financial is impacting consumers who have been unable to access their deposited funds in some fintechs. It is also having an impact banks specializing in fintech partnerships and were facing increased regulatory scrutiny even before the Synapse fiasco.

But new fintech initiatives continue to emerge. Last month, Liquid Treasuries, a consumer fintech product that combines aspects of checking, savings, and investing accounts, launched, aimed at wealthy Americans.

The product is the latest creation of Bill Harris, the former CEO of Intuit and PayPal who has since become a serial entrepreneur. In a recent interview, Harris seemed undaunted by the rapidly evolving landscape of fintechs that rely on bank partnerships.

“There is more regulatory scrutiny. There should be more regulatory scrutiny,” said Harris, founder and CEO of Evergreen moneythe digital wealth advisor that began offering Liquid Treasuries on June 25.

The launch of the Evergreen Money product is timed to take advantage of high interest rates in the United States. It allows consumers to invest their money in relatively high-yielding U.S. Treasury bonds while maintaining the instant access to their funds that checking accounts provide.

“People have a lot of money sitting in checking accounts that aren’t earning anything,” Harris said. “The problem isn’t that complicated.”

He added: “If we took every bank account in the country and put 5 percent in them, there would be another $103 billion in earnings in people’s pockets.”

What’s more complicated than the problem Harris is trying to address is the mechanism Evergreen Money and its partners have devised to unlock additional earnings for consumers.

The Evergreen Money account comes with a debit card issued by Coastal Community Bank in Everett, Washington. Customers also have access to ATMs, the ability to make wire transfers and payments on the automated clearing house network, or ACH, and the ability to set up direct deposits of their paychecks.

Harris advises consumers to use Liquid Treasuries as a substitute for their checking accounts, to get 5.31% returns, as of the end of June, on as much wealth as possible. “It’s as easy as a checking account,” he said. “It’s as accessible as a checking account.”

Here’s the tricky part: Most of Coastal’s client funds won’t be held in savings accounts insured by the Federal Deposit Insurance Corp. Instead, the money will largely be invested in Treasury bills held in brokerage accounts insured by the Securities Investor Protection Corp.

These brokerage accounts are held at Jiko Securities, another key partner for Evergreen Money. Jiko, which has its own banking division, has created technology designed to bank Treasury bonds.

The idea is to automatically transfer customer deposits into Treasury bonds and create an environment where the money can also be transferred back, Harris said. When a customer makes a purchase with a debit card, funds from a settlement account are used to provide immediate access to the customer’s money, he said.

Consumers can buy Treasury bonds directly from the U.S. government, but Harris said the process is quite complicated and that Liquid Treasuries makes it easier to own Treasuries.

Some high-yield savings accounts offer similar returns to those available from Liquid Treasuries, but residents of some states can get significant tax savings by investing in Treasury bonds. The interest paid on Treasury bonds is exempt from state and local taxes, which is helpful in states like California, where the top tax rate is more than 13%.

Evergreen Money Advisors is a registered investment advisor, and the startup makes money by charging a fee based on the size of the assets the client has under management. The minimum investment is $10,000, and clients pay a monthly fee of 0.03%.

In light of the Synapse failure, the operational aspects of bank-fintech partnerships are receiving increased attention, and the Liquid Treasuries product is operationally complex, said Jonah Crane, partner at consulting firm Klaros Group.

As a middleware vendor, Synapse stood between fintechs and banks, and its collapse left tens of millions of dollars in unaccounted-for customer funds. The funds Synapse held were not FDIC insured. Last month, Regulators hit former Synapse partner Evolve Bank & Trust with cease-and-desist order for issues that included deficiencies in consumer protection.

Crane, whose interests include banking as a service and integrated finance, predicted that following the failure of Synapse, fintechs will have a harder time finding partner banks, as those with the best reputations will be in high demand.

“It’s not hard to see how you could get into a real gridlock if everyone is trying to join one of those banks,” he said. “The banks are getting pretty picky.”

Evergreen Money probably had an edge over many fintechs in this regard. As the founding CEO of the financial app One, which was eventually acquired by WalmartHarris had previously worked with Coastal Community Bank.

In an interview, Coastal CEO Eric Sprink praised Harris, whose previous ventures include Personal Capital, a digital wealth management firm. acquired by Empower Retirement in 2020and money Nirvana, a digital credit card for low-income consumers That Harris closed shortly after its launch in 2022.

“He’s just a mad genius,” Sprink said. “He’s a really smart guy.”

Sprink agrees with Harris that increased regulatory scrutiny of the banking-as-a-service industry is a positive development. “I think it’s healthy,” he said. “Ultimately, I think a shakeup like this will really make things better.”

Other observers, including Jason Henrichs, founder and CEO of Alloy Labs, said that Synapse’s collapse did not appear to have made much of an impression on the general public, even amid mainstream Press coverage in the last weeks.

Greater public attention to the Synapse situation could prove detrimental to many consumer-facing fintechs, even those that operate responsibly and do not run the risks that a middleware vendor might incur.

Henrichs is not an impartial observer of Bill Harris’s latest initiative. He said Harris is a longtime mentor of his and that Coastal Community Bank is a member of Alloy Labs, which runs a community-banking alliance where member banks can collaborate.

Coastal is also one of the organizers of Alloy Labs’ Center for Excellence, which has been working to set standards for the banking-as-a-service industry, according to Henrichs. “They said, ‘Either we mature the industry, or bad things are going to happen,’” he said.

Now that bad things have happened (struggling consumers are filing lawsuits in Synapse’s bankruptcy case), Henrichs thinks some consumers will think twice about doing business with fintechs. But so far, he said, the impact appears to have been minimal.

“What will it take?” Henrichs wondered. “Is it: Jon Stewart has to report before people pay attention?”

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