The bankruptcy and subsequent collapse of BaaS fintech company Synapse has highlighted the vulnerabilities in the interconnected fintech ecosystem when a significant player falters.
Synapse provided a platform enabling other fintech companies to integrate banking services into their products. Examples include a payroll software provider using Synapse for instant payment features and other firms offering specialized credit or debit cards through Synapse’s services.
Based in San Francisco, Synapse secured over $50 million in venture capital funding, including a notable $33 million Series B round in 2019 led by Andreessen Horowitz’s Angela Strange. The company began facing difficulties in 2023, which led to layoffs and eventually filing for Chapter 11 bankruptcy in April 2024, aiming to sell its assets for $9.7 million to fintech company TabaPay. However, TabaPay withdrew from the deal, forcing Synapse into complete liquidation under Chapter 7, leaving many fintech clients and their customers in a lurch.
The fallout has prompted significant scrutiny of the banking-as-a-service (BaaS) model and digital banking overall, particularly given that millions of customers are unable to access nearly $160 million in deposits.
Timeline of Events and Ongoing Impact:
2024
- July 7: Reports indicate that efforts to reconcile and release the remaining frozen funds, approximately $158.6 million, have slowed, with an estimated $65 million to $95 million still missing.
- July 1: Senators urged Synapse’s partners and investors to restore customers’ access to their funds immediately, implicating both partners and venture investors in the missing funds.
- June 12: Despite the crisis, Synapse CEO Sankaet Pathak has reportedly raised $10 million for a new robotics startup, even as $85 million in customer savings remain unaccounted for.
- May 25: By late May, filings indicated that up to 100 fintechs and 10 million customers were affected by Synapse’s collapse. This included disrupted services for clients like crypto app Juno and banking platform Yotta. Fintech lender Mainvest announced it would shut down as a direct result.
- May 16: A U.S. trustee filed a motion to convert Synapse’s Chapter 11 bankruptcy to Chapter 7 liquidation, citing gross mismanagement and continued losses.
- May 13: Teen banking startup Copper, a Synapse customer, discontinued its banking deposit accounts and debit cards, leaving many families without access to their funds.
- May 9: TabaPay announced it had abandoned plans to purchase Synapse’s assets. Synapse’s CEO blamed Evolve Bank & Trust for the failed deal, a charge Evolve denied, stating it was not involved.
- April 22: Synapse filed for Chapter 11 bankruptcy, planning to sell its assets to TabaPay for $9.7 million, pending court approval. The deal later fell through.
2023
- October 13: Evolve Bank & Trust and digital bank Mercury terminated their relationships with Synapse and began working directly with each other.
- October 6: Synapse laid off 86 employees, about 40% of its workforce, following a prior layoff of 18% of staff earlier in the year due to adverse macroeconomic conditions impacting its clients and growth prospects.
According to TechCrunch, the collapse of Synapse has caused significant disruption and financial losses across the fintech industry, affecting many companies and millions of consumers. The incident underscores the importance of robust management and risk assessment within the BaaS and broader fintech sectors to prevent similar crises in the future.
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