“I have almost $38,000 tied up” after Synapse collapse – NBC Chicago

• A dispute between a fintech startup and its banking partners has potentially trapped millions of Americans, leaving them without access to their money for more than a week, according to recent court documents.
• Synapse serves as an intermediary between customer-facing fintech brands and FDIC-backed banks, but has had disagreements with many of its partners over the amount owed in customer balances.
• The situation has left users of several fintech services stranded without access to their funds, according to testimony filed this week in a California bankruptcy court.

A dispute between a fintech startup and its banking partners has potentially trapped millions of Americans, leaving them without access to their money for more than a week, according to recent court documents.

Of the last year, Synapses – a supported Andreessen Horowitz to boot which acts as an intermediary between customer-facing fintech brands and FDIC-backed banks – has had disagreements with many of its partners over the amount owed in customer balances.

The situation worsened in April after Synapse filed for bankruptcy following the exodus of several key partners. On May 11, Synapse cut off access to a technology system that allowed lenders, including Evolve Bank and Trustto process transactions and account information, according to court records.

That has left users of several fintech services stranded without access to their funds, according to testimony filed this week in a California bankruptcy court.

One customer, a Maryland teacher named Chris Buckler, said in a May 21 statement that his funds are at the crypto app Juno they were blocked due to the failure of Synapse.

“I am increasingly desperate and don’t know where to turn,” Bucker wrote. “I have almost $38,000 stuck due to transaction processing disruption. It took me years to save this money.”

Until recently, Synapse, which billed itself as the largest banking-as-a-service provider, helped a broad swath of the U.S. fintech universe provide services like checking accounts and debit cards. Ex partners included Mercury, Dave and Juno, well-known fintech companies that catered to segments including startups, gig workers and cryptocurrency users.

Synapse had contracts with 20 banks and 100 fintechs, totaling about 10 million end users, according to an April statement from the founder and CEO Sankaet Pathak.

Pathak did not immediately respond to an email seeking comment. An Evolve spokesperson declined to comment, instead pointing to declaration on the bank’s website which reads, in part:

“Synapse’s sudden shutdown of essential systems without warning and failure to provide necessary data unnecessarily jeopardized end users, hindering our ability to verify transactions, confirm end user balances, and comply with applicable law “, the bank said.

It’s unclear why Synapse shut down the system, and no explanation could be found in the filings.

Another customer, Joseph Dominguez of Sacramento, California, wrote that he had more than $20,000 held in his Yotta fintech account.

“We fear that money will be lost if Synapse cannot provide records and documents to Evolve or Yotta to prove that we are the rightful owners,” Dominguez wrote. “We don’t know where our direct deposit went, we don’t know where our pending withdrawals are currently stored.”

The freezing of customer funds highlights vulnerabilities in the Banking as a Service, or BAAS, partnership model and a possible blind spot for regulatory oversight.

The BAAS model, used in particular by the pre-IPO fintech company Music box, allows Silicon Valley-style startups to leverage the capabilities of small, FDIC-backed banks. Together, the ecosystem has helped these companies compete against the giants of American banking.

Customers mistakenly believed that because the funds are ultimately deposited in real banks, they were as safe and available as any other FDIC-insured account, they said Jason Mikulaa consultant and newsletter writer who has followed this case closely.

“This is over 10 million people who can’t pay their mortgages, can’t do their shopping… This is another disaster,” Mikula said.

Regulators have yet to take a role in the dispute, in part because the underlying banks involved have not failed, the point at which the FDIC would typically step in to cure customers, Mikula added.

The FDIC and Federal Reserve did not immediately respond to requests for comment.

When appealing to the judge in this case, Martin Barashto help affected customers, Buckler noted in his testimony that while he had other resources beyond the blocked account, others aren’t so lucky.

“So far the federal government is unwilling to help us,” Buckler wrote. “As you have heard, there are millions of people affected who are in much worse conditions.”

Reached by phone Wednesday, Buckler said he had a message for Americans:

“I want to raise awareness among people: yes, your money might be safe in the bank, but it’s not safe if the fintech or processor fails,” he said. “If this is another FTX, if they were doing funny deals with my money, then what?”

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