The collapse and bankruptcy of BaaS fintech company Synapse has revealed just how treacherous things can become in the interdependent fintech industry when one of the key players runs into trouble.
Synapse operated a service that allowed other companies, primarily fintechs, to incorporate banking services into their own offerings: For example, a software provider specializing in payroll for companies with many 1099 subscribers used Synapse to offer instant payments capabilities, while other providers used it to offer specialized credit and debit cards.
The San Francisco-based startup has raised a total of just over $50 million in venture capital funding, including a $33 million Series B in 2019 led by Andreessen Horowitz's Angela Strange. The startup was mired in layoffs in 2023 and filed for Chapter 11 bankruptcy protection in April this year, hoping to sell its assets to another fintech company, Tabapay, for $9.7 million, but Tabapay pulled out.
As a result, Synapse was forced to fully liquidate under Chapter 7 bankruptcy protection, leaving many other fintech companies and their customers, including Juno, Yotta, and Yieldstreet, to pay the price for Synapse's demise.
Given that millions of consumers with nearly $160 million in deposits still cannot access their funds, the debacle has led observers to question the entire concept of banking as a service and digital banking as a whole.
Below is a timeline of Synapse's troubles and their ongoing impact on bank customers.
2024
About $160 million remains frozen
July 7: Fintech Business Weekly reports that a recent “briefing on the ongoing Synapse bankruptcy did not offer much hope for end users whose funds are still frozen, and efforts to reconcile and release the remaining approximately $158.6 million in funds appear to be slowing,” meaning that there is still roughly $158.6 million owed to end users, although there was an estimated $65 million to $95 million in lost funds.
The senators are calling on Synapse and its partners and supporters to restore access to customers' funds.
July 1: A group of senators band together to urge Synapse's owners and its banking and fintech partners to “immediately restore access to customer funds.” As part of their demands, the senators blame both the company's partners and venture capitalists for the disappearance of customer funds.
Synapse CEO to start new company
June 12: Synapse CEO Sankaet Pathak has reportedly already raised $10 million for his new robotics startup, even as the whereabouts of $85 million in Synapse customer savings remains in question.
The fallout continues, affecting more fintech companies and millions of consumers
May 25: Synapse filings reveal that up to 100 fintech companies and 10 million end users may have been affected by the company's collapse by the end of May. For example, cryptocurrency app Juno and banking platform Yotta funds were also affected by Synapse's collapse. Meanwhile, Mainvest, a fintech lender for restaurant businesses, announced it would actually close down as a result.
U.S. Trustee files for Chapter 7 bankruptcy
May 16: A U.S. trustee files an emergency motion to convert Synapse's debt restructuring Chapter 11 bankruptcy to liquidation Chapter 7. The trustee said Synapse has “significantly” mismanaged its assets, causing continued losses with little “reasonable possibility of reorganization” that would allow the company to restructure and continue operating.
Teen banking startup Copper is abandoning banking
May 13: Copper, the teen banking startup that is a Synapse client, had to abruptly phase out bank accounts and debit cards due to Synapse's difficulties, leaving countless consumers (mostly families) unable to access the funds they had trusted into their Copper accounts.
Asset sale canceled
May 9: TabaPay announces it has abandoned plans to buy Synapse's assets. When the deal unraveled, a lot of finger-pointing occurred. Synapse's CEO blamed its banking partner, Evolve Bank & Trust, for the problem. Evolve denied the accusations, saying it was not involved and was not responsible. Meanwhile, Mercury, another party in the fray, said Synapse's claims were “baseless.”
Synapse files for Chapter 11 bankruptcy, sells assets for $9.7 million
April 22: Synapse files for Chapter 11 bankruptcy protection and announces that, pending bankruptcy court approval, its assets will be acquired by instant payments company TabaPay. (Again, TabaPay backed out of the deal a few weeks later.)
2023
Synapse lays off staff amid reports of tensions with partner Evolve Bank
October 13: Evolve Bank & Trust and emerging digital bank Mercury each end their relationships with Synapse to work directly. Evolve and Synapse have addressed the turmoil here.
October 6: Synapse confirmed it had laid off 86 people, or about 40% of the company. This came just four months after the company had laid off 18% of its workforce as current macroeconomic conditions began to impact its customers and platform, impacting expected growth. In 2019, TechCrunch reported on the company's $33 million Series B funding led by Andreessen Horowitz after it rebranded from SynapseFi.
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