Neobanks such as Yotta, Juno and Copper had become increasingly popular in recent years. These banking applications were not real banks, but banking services that used Technology to connect their applications to real bank accounts in partner banks.
Synapse Financial Technologies was one of the largest providers of these "banking as a Service" solutions and was in bankruptcy and closure. For banking services and partner banks, this led to serious disruptions that potentially left millions of Americans without access to their funds for almost two weeks.
Distress for consumers
Reddit threads and court documents revealed the seriousness of the situation. Individuals claim that they cannot access their money, pay their bills and worry about how they will pay the rent next month. In addition, direct deposits from payroll providers can actually deposit money into these inaccessible accounts, resulting in even more money being blocked.
One of the largest banking providers, Evolve Bank and Trust, said it needed Synapse's records to match customer accounts opened in its bank. Customers are worried that the balances will be incorrect once all this is sorted out.
In addition, the FDIC, the Federal Reserve, the president and congress have all remained silent about the crisis.
Scope of the problem
Synapse has been one of the main players in the "banking as a Service", allowing fintech startups to offer banking services through partnerships with banks supported by the FDIC. According to an April dossier by Synapse founder and CEO Sankaet Pathak, the company had contracts with 20 banks and 100 fintech companies serving about 10 million end users.
These partnerships have allowed FinTech companies and neobanks to present themselves as "FDIC insured" and to give clients a sense of security for their funds in matter of problems. In general, in the event of a failure of traditional banks, customers can resume their normal banking activities within a few days. In this matter, customers have effectively been excluded from their accounts for weeks.
In addition, there are fears that this could lead to a rush to the bank in some of these partner banks. When banking access is restored, millions of consumers will immediately withdraw their money from these banks. The effectiveness of this large-scale removal is not-known.
Several of the companies concerned have already announced that they will cease their activities. Kupfer, with almost a Million users, announced on May 13 that they would simply close and work to have customer funds returned. However, customers are still waiting.
MainVest, an investment company, has announced that it will cease its activities on June 14, 2024 due to the Situation of Synapse and Evolve.
FinTechs concerned by the Funds
According to a court filing, the funds could have been allocated by the following companies until May 14, 2024. Just because you have money doesn't mean that the business is disrupted, but it clearly has an impact on many of these companies:
The Bankruptcy Court, where the Synapse hearings are held, is trying to solve the problem, but this does not help consumers who cannot access their money today.
Consumers should be aware of the use of banking financial applications as a service-the protection when using these applications is not the same as that of traditional banks. And regulators need to take a more effective approach to dealing with this type of situation.
Synapse Financial Technologies was one of the largest providers of these "banking as a Service" solutions and was in bankruptcy and closure. For banking services and partner banks, this led to serious disruptions that potentially left millions of Americans without access to their funds for almost two weeks.
Distress for consumers
Reddit threads and court documents revealed the seriousness of the situation. Individuals claim that they cannot access their money, pay their bills and worry about how they will pay the rent next month. In addition, direct deposits from payroll providers can actually deposit money into these inaccessible accounts, resulting in even more money being blocked.
One of the largest banking providers, Evolve Bank and Trust, said it needed Synapse's records to match customer accounts opened in its bank. Customers are worried that the balances will be incorrect once all this is sorted out.
In addition, the FDIC, the Federal Reserve, the president and congress have all remained silent about the crisis.
Scope of the problem
Synapse has been one of the main players in the "banking as a Service", allowing fintech startups to offer banking services through partnerships with banks supported by the FDIC. According to an April dossier by Synapse founder and CEO Sankaet Pathak, the company had contracts with 20 banks and 100 fintech companies serving about 10 million end users.
These partnerships have allowed FinTech companies and neobanks to present themselves as "FDIC insured" and to give clients a sense of security for their funds in matter of problems. In general, in the event of a failure of traditional banks, customers can resume their normal banking activities within a few days. In this matter, customers have effectively been excluded from their accounts for weeks.
In addition, there are fears that this could lead to a rush to the bank in some of these partner banks. When banking access is restored, millions of consumers will immediately withdraw their money from these banks. The effectiveness of this large-scale removal is not-known.
Several of the companies concerned have already announced that they will cease their activities. Kupfer, with almost a Million users, announced on May 13 that they would simply close and work to have customer funds returned. However, customers are still waiting.
MainVest, an investment company, has announced that it will cease its activities on June 14, 2024 due to the Situation of Synapse and Evolve.
FinTechs concerned by the Funds
According to a court filing, the funds could have been allocated by the following companies until May 14, 2024. Just because you have money doesn't mean that the business is disrupted, but it clearly has an impact on many of these companies:
- Yotta
- Junos
- Money Application
- Were Changing
- Curacubby
- Gigwage
- Yield road
- Silver BOSS
- Home base
- Snap! Pass
- Name base
- Office worker
- Build
- SeedFi (acquired by Credit Karma)
- Donuts
- Microenterprises
The Bankruptcy Court, where the Synapse hearings are held, is trying to solve the problem, but this does not help consumers who cannot access their money today.
Consumers should be aware of the use of banking financial applications as a service-the protection when using these applications is not the same as that of traditional banks. And regulators need to take a more effective approach to dealing with this type of situation. 
