A dispute between a fintech startup, Synapse, and its banking partners has left potentially millions of Americans without access to their money for nearly two weeks. Synapse, backed by Andreessen Horowitz, serves as an intermediary between customer-facing fintech brands and FDIC-backed banks, had disagreements with partners regarding customer balances. The situation worsened in April when Synapse declared bankruptcy following the departure of key partners. On May 11, access to the technology system enabling lenders like Evolve Bank & Trust to process transactions was cut off, leaving users of several fintech services stranded with no access to their funds.
Formerly, Synapse was the largest provider of “banking as a service”, offering services like checking accounts and debit cards to various U.S. fintech companies. The company had contracts with 20 banks and 100 fintech firms, serving about 10 million end users. However, following the bankruptcy declaration and the cessation of access to the technology system, many users have been unable to access their funds. Testimonials filed in a California bankruptcy court reveal the distress of customers like Chris Buckler, a Maryland teacher, who has nearly $38,000 locked in his crypto app Juno account, causing him significant financial strain.
Multiple customers, including Joseph Dominguez of Sacramento, California, have expressed concerns about the potential loss of their funds due to the disruption caused by the Synapse bankruptcy. They fear that without access to necessary records and ledgers, they may not be able to prove their ownership or retrieve their money. The freeze-up of customer funds highlights vulnerabilities in the banking as a service partnership model and raises questions about regulatory oversight. While the model enabled fintech companies like Chime to compete with traditional banks, the current situation has exposed the limitations of relying on such partnerships for financial services.
The lack of intervention from regulators in the Synapse dispute is partly due to the fact that the underlying banks have not failed, which would typically trigger action by the FDIC to protect customers’ funds. Jason Mikula, a consultant tracking the case, believes that because customers assumed their funds were safe at real banks, they did not anticipate the risks associated with fintech partnerships. The situation underscores the need for clearer regulations to safeguard customer finances in the event of such disruptions. Despite the potential impact on millions of people who are unable to access their funds, regulatory bodies like the FDIC and Federal Reserve have not yet responded to the situation.
Customers affected by the Synapse bankruptcy have appealed to the judge overseeing the case to assist them in recovering their funds. Chris Buckler emphasized that while he personally had other resources available, many others were in dire financial circumstances due to the frozen accounts. Buckler warned that while traditional banks may be secure, fintech partnerships and processors could pose additional risks to customers’ funds. The ongoing dispute serves as a cautionary tale for Americans to be aware of the potential vulnerabilities in the financial system and to take precautions to protect their assets in the event of such disruptions.
