Fintech
Arizonans lost the math after Synapse’s failure
Paying rent, mortgage, groceries, gas and entertainment – life is expensive! But what happens to a person’s life if they lose access to their money? Right now, this is the reality facing many Americans.
The bank accounts of thousands of consumers and businesses have been frozen for weeks. At the heart of the crisis is a dispute between fintech startups Synapsesand its banking partners. Synapse acts as an intermediary between customer-facing financial technology, or fintech, brands and FDIC-backed banks.
Synapse filed for Chapter 11 bankruptcy protection in April and terminated its services to some of its fintech partners, including Yotta. Yotta is an online application that offers users the chance to win prizes while saving money. Since Synapse stopped its services, Yotta has been unable to process transactions, according to its website.
It impacts people like Carl who let ABC15 know about his experience. Carl writes in an email “I was supposed to receive my paycheck last week and still haven’t received it. I also can’t access my money or withdraw it. Because of this I’m struggling financially right now…”
In an email to consumers, Yotta says there is no access to funds or the ability to move money in any capacity due to the shutdown of Synapse’s systems. According to Yotta’s website, a Chapter 11 trustee has been appointed for the Synapse case, but an update is not expected until June 6.
Latest from Let ABC15 Know:
For years, traditional bankers and consumer advocates have criticized the fintech model of doing business. In most cases, fintech companies are not actual banks. Instead, these companies partner with banks, many of which are smaller institutions, and use the bank as a place to store client holdings without having to be a bank themselves. To operate in this way, fintech companies often need an intermediary to take care of the accounting: this is where Synapse comes in. However, since none of the banks that Synapse has partnered with have failed, there is no eligibility for FDIC deposit insurance payments.
This isn’t the first time a fintech failure has negatively impacted consumers’ bottom lines. In 2015, hundreds of thousands of customers of RushCard, a prepaid debit card company, were left without funds due to a failed software update. The company was later fined $13 million by the Consumer Financial Protection Bureau.
If you have been affected and need to file a complaint, contact the FDIC by phone at 1-877-275-3342 or on line.
If you would like to evaluate fintech-related regulations, please contact Consumer Financial Protection Bureau by phone or online.