The failure and subsequent bankruptcy of BaaS provider Synapse have shone a spotlight on the precarious nature of the fintech ecosystem, especially when a pivotal entity stumbles.
Providing a platform for other companies, predominantly fintech firms, to incorporate banking solutions into their services was Synapse’s hallmark. An example includes a software vendor catering to companies heavily reliant on 1099 contractors, which utilized Synapse for enabling immediate payment functions; others deployed its services for niche credit/debit card products.
The tech firm from San Francisco managed to secure upwards of $50 million in venture funding, with a significant $33 million Series B injection in 2019 spearheaded by Andreessen Horowitz’s Angela Strange. However, 2023 saw the company experiencing financial instability, leading to layoffs, and in April, Synapse opted for Chapter 11 bankruptcy, attempting to auction its assets for $9.7 million to fintech enterprise TabaPay — a deal that fell through when TabaPay withdrew.
Consequently, a push for complete liquidation under Chapter 7 was initiated against Synapse, leaving numerous other fintech firms like Juno, Yotta, and Yieldstreet — not to mention their clientele — to bear the brunt of Synapse’s downfall.
This situation has prompted observers to reevaluate the banking-as-a-service (BaaS) model and the digital banking sector at large, given that several consumers are left in limbo with about $160 million in deposits locked away.
Below is a chronicle of Synapse’s tribulations and its cascading effects on banking customers.
2024
Founder secures $11 million for a new venture
August 22: With ambitions to “automate GDP through AI and Robotics to liberate individuals from laborious jobs,” Sankaet Pathak focuses his efforts on his latest venture, Foundation. Furthermore, on August 20, Pathak announced via X that it was high time Synapse’s erstwhile collaborator, Evolve Bank, addressed customer refunds and reconciled the financial discrepancies created.
A substantial $160 million still inaccessible
July 7: A recent report by Fintech Business Weekly brings to light a “status conference” in the ongoing bankruptcy proceedings of Synapse, which indicates a grim outlook for end users waiting on the unfreezing of around $158.6 million.
Legislators demand customer fund access restoration
July 1: A coalition of senators has called upon the ownership and partners of Synapse, alongside its venture patrons, to ensure immediate restitution of customer funds.
The journey of Synapse’s CEO to new beginnings
June 12: In the midst of enduring questions over $85 million of unaccounted customer savings at Synapse, CEO Sankaet Pathak has successfully secured $10 million for a new robotics venture.
Continued fallout impacts multiple fintechs and millions of clients
May 25: Filings reveal Synapse’s collapse impacted up to 100 fintech firms and 10 million end consumers by May’s end, with entities like Juno and Yotta also affected. Mainvest, a fintech lender to the culinary sector, announced its shutdown as a direct consequence.
Push for Chapter 7 by U.S. trustee
May 16: An urgent motion was filed by a U.S. trustee to transition Synapse’s Chapter 11 reorganizational bankruptcy towards Chapter 7 liquidation, citing severe mismanagement and negligible chances of rehabilitation.
Teen banking startup Copper halts operations
May 13: Confronted with Synapse’s challenges, teen banking service Copper was compelled to terminate its banking and debit card services, affecting numerous families and their stored funds.
Asset sale plans abandoned
May 9: The deal for TabaPay to purchase Synapse’s assets dissolved amid blame shifting, with accusations aimed at banking partner Evolve Bank & Trust, which refuted such claims, and other involved parties dismissing the allegations as unfounded.
Initiation of Chapter 11 bankruptcy by Synapse, assets on the line
April 22: With the intention of selling its operations to instant payment enterprise TabaPay — a proposal that was later retracted — Synapse filed for Chapter 11 bankruptcy.
2023
Redundancies at Synapse amid tensions with Evolve Bank
October 13: Following an end to their collaboration with Synapse, Evolve Bank & Trust and digital banking newcomer Mercury chose to direct their cooperative efforts towards one another, bypassing the beleaguered Synapse.
October 6: Synapse verified the layoff of 86 employees, tantamount to 40% of its workforce, merely four months post the discharge of 18% of its personnel attributed to “current macroeconomic conditions” affecting client and platform growth. Its substantial Series B funding round led by Andreessen Horowitz, post-rebranding from SynapseFi, was spotlighted in 2019 by TechCrunch.
Note: Following initial publication, this article received an update to clarify that Synapse’s transition to Chapter 7 has not yet occurred.
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