The demise and insolvency of BaaS fintech Synapse has exposed the perilous state of the frequently interconnected fintech industry when a major participant has difficulties.
Synapse provided a platform via which other parties, primarily fintechs, could include banking services into their products. For example, Synapse was utilized by a software company that specialized in payroll for organizations with a high number of 1099 contractors to offer a fast payment function; other users used it to create credit/debit cards with specific features.
Over the course of its existence, the San Francisco-based business has raised just over $50 million in venture funding, including a $33 million Series B deal in 2019 that was spearheaded by Angela Strange of Andreessen Horowitz. In an attempt to sell its assets in a $9.7 million fire sale to another fintech company, TabaPay, Synapse filed for Chapter 11 in April of this year after struggling financially in 2023 with layoffs. However, TabaPay left.
As a result, Synapse was compelled to completely liquidate under Chapter 7, and the consumers of numerous other fintech companies, including Juno, Yotta, and Yieldstreet, are bearing the brunt of Synapse’s demise.
The fiasco has onlookers doubting digital banking in general and the idea of banking-as-a-service in particular, given that millions of customers holding deposits close to $160 million are still unable to access their money.
This is a timeline of Synapse’s problems and the continued effects they are having on customers who use banks.
2024-
Funds totaling close to $160 million remain frozen.
July 7: According to Fintech Business Weekly, efforts to reconcile and release the remaining money, totaling about $158.6 million, appear to be stalling, and a recent “status conference in the ongoing Synapse bankruptcy didn’t offer much hope to end users whose funds were still frozen.” This indicates that end users were still due approximately $158.6 million. Nonetheless, there were reportedly missing monies totaling between $65 million and $95 million.
Senators demand that Synapse, its supporters, and partners allow users to access their money again.
Senators united on July 1st to demand that Synapse’s bank and fintech partners, as well as the company’s owners, “immediately restore customers’ access to their money.” The senators included requests that held the company’s venture backers and partners accountable for misplaced customer payments.
The CEO of Synapse starts a new business.
June 12th: Even though there are still unanswered issues regarding the whereabouts of $85 million in customer savings from Synapse, the company’s CEO, Sankaet Pathak, has apparently already raised $10 million for a new robotics business.
May 25: Fallout persists, affecting millions of customers and more fintechs Up to 100 fintechs and 10 million end users may have been harmed by Synapse’s demise by the end of May, according to the company’s papers. For example, the failure of Synapse also affected the money on the cryptocurrency app Juno and the banking site Yotta. In the meantime, Mainvest, a fintech lender to restaurants, announced that it was indeed closing as a result.
The US Trustee advocates for Chapter 7.
May 16: An emergency request was filed by a United States trustee to change Synapse’s Chapter 11 bankruptcy for debt restructuring into a Chapter 7 liquidation. According to the trustee, Synapse had “grossly” mismanaged its estate, resulting in ongoing losses and little “reasonable likelihood of reorganization” that would have enabled the business to survive and continue.
Teenage banking startup serving customers Copper closes its banking branches.
May 13: Due to Synapse’s problems, teen banking company Copper, which was a client of Synapse, was forced to quickly terminate its debit cards and bank deposit accounts. As a result, a large number of customers—mostly families—were unable to access the money they had put into Copper’s accounts with confidence.
May 9: TabaPay announced that it has given up on its plans to buy Synapse’s assets. Sale of assets called off. When the agreement fell through, there was a great deal of finger-pointing. The CEO of Synapse accused Evolve Bank & Trust, a banking partner, of being the source of the issue. Evolve refuted the accusations, claiming it had nothing to do with them and was not at fault. Mercury, a different character in the story, claimed that Synapse’s accusations had “no merit.”
Synapse files for Chapter 11 bankruptcy; $9.7 million will be obtained via the sale of its assets
April 22: Synapse filed for Chapter 11 bankruptcy and said that, subject to bankruptcy court approval, quick payments startup TabaPay will purchase its assets. (Once more, TabaPay will back out of the agreement a few weeks later.)
2023
Staff layoffs at Synapse are accompanied by rumors of conflict with partner Evolve Bank.
October 13: After parting ways with Synapse, Evolve Bank & Trust and Mercury, a fledgling digital bank, now collaborate directly. Here’s where Evolve and Synapse handled the controversy.
October 6: Synapse announced that 86 employees, or around 40% of the business, had been let go. That came just four months after the business let off eighteen percent of its employees due to “the current macroeconomic conditions,” which started to harm its platforms and clients and stunt its planned expansion. After changing its name from SynapseFi to Andreessen Horowitz, the firm raised $33 million in a Series B funding round in 2019, which TechCrunch covered.