The bankruptcy and collapse of Synapse, a BaaS fintech firm, has highlighted the dangers of a highly interconnected fintech world when one major player is in trouble.
Synapse Role and Services
Synapse’s operation was to help others, such as fintechs, embed banking services into their solutions. For instance, another company that provides payroll software in 1099 worker-heavy enterprises turned to Synapse for instant payment; others used it to offer specialized credit/debit cards.
Financial Background
This startup in San Francisco raised slightly over $50 million worth of venture capital, including a 2019 series B round worth $33 million led by Andreessen Horowitz’s Angela Strange. Layoffs hit Synapse in 2023, and it filed for Chapter 11 this year, hoping to sell its assets at a $9.7m fire sale to another fintech, TabaPay. But TabaPay walked away.
Liquidation and Impact on Other Fintechs
As a result, under Chapter 7, Synapse had to liquidate itself. At the same time, many other Fintech firms have been hit like Juno, Yotta, and Yieldstreet, among others – together with their customers due to the demise of Synapse.
Industry Implications
Considering that almost USD160 million held by millions of depositors remains inaccessible during this period, the concept of BaaS and digital banking must be rethought since the event has led many consumers whose funds are locked up to have no chance yet to hear from them.
Timeline of Synapse’s Troubles and Ongoing Impact
2024
Still Holding Back Nearly USD160 Million Worth Of Funds
July 7: The recent ongoing status conference surrounding the bankruptcy case by Synapse did not bode well for end users who still could not access their money with efforts at reconciliation and release lagging around approximately $158.6m, thereby implying that about $158.6m still owing to end users with an estimated $65m to $95m being missing.
Senators Ask Synapse, Its Partners, And Investors To Give Back Money They Took From Their Customers
July 1: In a joint effort, a group of senators has asked the owners of Synapse, their fintech and banking partners to “immediately restore customers’ access to their money.” The lawmakers named the company’s venture capitalists and the other partners culprits.
Synapse CEO Starts Over
June 12: Sankaet Pathak, the CEO of Synapse, has already secured $10m for a new robotics startup, even though there are still questions about where $85m customer deposits in Synapse had gone.
Fallout Continues, More Fintechs and Millions of Consumers Affected
May 25: Through its filings, up to a hundred FinTech companies that impacted ten million end-users may have been directly linked to Synapses’ collapse come the last day of May. For example, Juno, a cryptocurrency app, lost funds, while Yotta, another banking platform, suffered from this unfortunate incident. Meanwhile, Mainvest, a fintech lender serving restaurant businesses, is down.
U.S. Trustee Pushes for Chapter 7
May 16: A United States trustee filed an emergency motion to convert Synapse’s debt reorganization Chapter 11 bankruptcy into a liquidation Chapter 7. Gross mismanagement of its estate by Synapse rendered the UST’s application necessary so that there was no reasonable likelihood that such losses would abate or that any form or organization could be sustained through such a process.
Copper, a teen banking startup Synapse customer, abruptly terminated its banking deposit accounts and debit cards due to Synapse’s problems. This left an unknown number of consumers, primarily families, without access to the funds they had deposited into Copper’s accounts in good faith.
Asset Sale Aborted
May 9: TabaPay declared it has canceled its intention to acquire Synapse’s properties. When this deal fell apart, there was lots of finger-pointing. Synapse’s CEO said the problem was with the bank partner Evolve Bank & Trust. Mercury also called out the liar when the company stated there were no grounds for synapses allegations.
Synapse files Chapter 11 bankruptcy and agrees to sell assets at $9.7m
April 22: The filing stated that TabaPay would buy its assets from an instant payments firm, pending court approval and continued operations until then.” (TabaPay would withdraw from the deal two weeks later.)
2023
Synapse lays off workers as tension rises with Evolve Bank partner.
October 13: Evolve Bank & Trust cut ties with Synapse, while startup digital bank Mercury collaborated directly with them. Here is how both sides reacted.
October 6: Recently laid off eighty-six people, representing approximately forty percent of Synapse’s workforce (just four months earlier, this figure stood at eighteen percent when “the current macroeconomic conditions” were beginning to affect its customers and platforms, leading to reduced growth expectations). In 2019, TechCrunch discussed the firm changing its name from SynapseFi following a $ 33 m series B round led by Andreessen Horowitz.
