The unexpected demise and subsequent insolvency of Banking-as-a-Service (BaaS) provider Synapse has laid bare the precarious situation within the fintech ecosystem when a critical component fails.
Synapse provided a platform enabling businesses, especially fintech companies, to integrate banking features into their solutions. For example, software businesses focusing on payroll for businesses employing 1099 contractors utilized Synapse for real-time payment capabilities; similarly, others leveraged it to introduce bespoke credit/debit card offerings.
The startup from San Francisco had acquired slightly over $50 million in venture funding over its existence, with a notable $33 million Series B round in 2019 led by Angela Strange from Andreessen Horowitz. Challenges emerged for Synapse in 2023, leading to staff reductions and a Chapter 11 bankruptcy filing in April, attempting to offload its assets for $9.7 million to TabaPay—a deal that ultimately unraveled.
The fallout from Synapse’s collapse has been significant, compelling the liquidation under Chapter 7, adversely affecting numerous fintech entities like Juno, Yotta, and Yieldstreet, and leaving their customers to bear the brunt of Synapse’s downfall.
This scenario has prompted a reassessment of the viability of banking-as-a-service (BaaS) and digital banking in its entirety, especially considering the predicament of countless consumers who are currently unable to reach nearly $160 million of their deposited funds.
Below is a chronicle of the unfolding trouble at Synapse and how it continues to affect banking consumers.
2024
Close to $160 million in deposits remain inaccessible
July 7: Fintech Business Weekly sheds light on a recent “progress review” in the ongoing bankruptcy proceedings of Synapse, depicting a bleak outlook for depositors awaiting the release of an estimated $158.6 million. Additionally, an alarming sum between $65 million to $95 million is reported as unaccounted for.
Legislators call for immediate restoration of customer access to funds
July 1: A collective of senators has approached the leadership of Synapse, alongside its banking and fintech allies, to expedite the resolution process for clients’ trapped funds. The partners and investors of Synapse are being held accountable for the financial limbo facing its customers.
Synapse CEO ventures into a new start-up realm
June 12: Amid ongoing uncertainties regarding $85 million of Synapse’s client reserves, CEO Sankaet Pathak has purportedly secured $10 million in funding for a new venture in robotics.
The ripple effect: Widespread impact on fintechs and consumers
May 25: Filings suggest Synapse’s downfall could potentially impact over 100 fintech companies and 10 million consumers by the end of May, with fintech platforms like Juno and Yotta also affected. Mainvest, a lending service to the restaurant sector, highlights the domino effect by announcing its closure.
Push for Chapter 7 from U.S. Trustee
May 16: The call for transitioning Synapse’s debt reorganization from Chapter 11 to a Chapter 7 liquidation comes from a U.S. trustee, citing “gross” mismanagement and dim prospects for reorganization and recovery.
The end of banking services for teen-oriented startup Copper
May 13: Copper, targeting young banking clients, has to cease its banking services abruptly, leaving numerous families in a dilemma over their funds deposited with Copper, courtesy of Synapse’s operational troubles.
Asset sale falls through
May 9: The deal for the asset purchase by TabaPay is off, leading to a blame game. Synapse’s CEO points fingers at Evolve Bank & Trust, which refutes the allegations, claiming no fault. As part of this sequence, Mercury also comments on the baselessness of Synapse’s claims.
Synapse seeks Chapter 11 protection, assets up for sale
April 22: Amidst its financial woes, Synapse takes to Chapter 11 bankruptcy, announcing plans to sell its assets to TabaPay for $9.7 million, although this agreement dissolves shortly thereafter.
2023
Synapse reduces its workforce amid friction with partner
October 13: The ties between Evolve Bank & Trust and the digital bank Mercury with Synapse see an end, following which they choose to collaborate directly, leaving past discord in their wake.
October 6: Confirmation comes from Synapse about cutting down its staff by 86 members, accounting for 40% of its workforce, a direct consequence of the challenging macroeconomic climate and its toll on the anticipatory growth of Synapse’s client base.
Note: This article has been updated to clarify that Synapse’s transition to Chapter 7 is not yet final.
Interested in more fintech developments? Subscribe to TechCrunch Fintech for updates here.
Have a tip? Reach out to me at maryann@techcrunch.com, or via Signal at 408.204.3036. For broader inquiries, connect with TechCrunch at tips@techcrunch.com. For more confidential communication, find our contact details here, including SecureDrop (instructions here) and our encrypted messaging options.
Compiled by Techarena.au.
Fanpage: TechArena.au
Watch more about AI – Artificial Intelligence
