Fintech
Intricate network with FinTechs, intermediaries, banks
In biology, a synapse is essentially a conduit, a place in the brain where neurons connect and communicate.
In financial services, recent news that TabaPay would put an end to the planned FinTech takeover Synapse financial technologies brings to mind a different type of connectivity:
The intertwined links between FinTechs, sponsoring banks, their efforts to expand banking as a service… and the risks that may be inherent to it.
Here are the details so far:
As reported Thursday (May 9), and as of this writing, TabaPay, a payments processor, has withdrawn its deal to buy Synapse, which focuses on banking as a service (BaaS).
Under the terms of the deal, TabaPay was supposed to pay $9.7 million to acquire Synapse’s assets.
Synapse, for its part, had focused on serving as a middleware company, enabling virtual deposits, credits and cards.
Synapse did it through its platform “hub” and through a modular approach to BaaS, which allows these customers to essentially operate in the financial services space without the need to obtain a bank card.
The intermediary model is one that connects banks with non-bank entities that want to accept deposits and make loans to end customers.
The deal would have helped TabaPay offer new financial services for FinTechs and traditional financial institutions (FIs).
As an example, sponsor banks are, well, banks – operating at the state or federal level – that connect with FinTech partners so that the latter can bring their financial innovations to other businesses or to the masses.
Evolve Bank and Trust was provide sponsor banking services at Synapse since 2017. But as reported here this week from TechCrunchthere had been some dispute between Synapse and Evolve, which notified Synapse of the intention to end the relationship and work directly with Mercury, a FinTech business banking, instead of using Synapse as an intermediary.
Mercury, one of Synapse’s largest customers, ended its relationship with Synapse, which subsequently laid off 40% of its staff.
Melt under the microscope
One of the final conditions of the TabaPay agreement to purchase Synapse, detailed by Fintech Business Weekly, centered on the stipulation that Evolve must fully fund so-called FBO (or “for the benefit of”) accounts that receive third-party funds. Synapse says Evolve didn’t do it, Evolve says it did, according to reports… and TabaPay is gone, apparently, despite the accusations.
Post on Medium from the CEO of Synapse Sankaet Pathak they claim Mercury moved nearly $50 million in FBO funds into Evolve. Synapse’s CEO wrote, alongside the screenshots, that this “suggests as much [Mercury] you moved more money than you should have… [It] indicates that adequate reconciliation procedures are not in place.
The evolution of BaaS – and where are intermediaries going?
The machinations and paths as Synapse heads toward bankruptcy are tortuous, and the work is ongoing. But the events give a nod to the evolving role and pressures on “middleware” or intermediary relationships within BaaS.
In an interview with Karen WebsterDrew Webster, CEO of Ingo Payments, said that “BaaS 1.0 was, in a sense, the focus of technology companies on enabling technology companies. They would build a cloud core and bring together all kinds of third-party providers to manage what we would call money mobility.” He noted that regulators are now turning their attention to downstream risks associated with know your customer (KYC), compliance and risk management, fraud and financial security. of FinTechs and their partners.
We may see a wave of more direct relationships within BaaS, as FinTechs sell directly to banks. Treasury Prime is an example here. The company once marketed its BaaS platform to FinTechs, helping them connect to banks. Earlier this year, Treasury Prime, which operates a banking platform as a service, let go about half its staff and shifted its focus to selling directly to banks. His efforts had once been focused on FinTechs. And in this quest for connectivity, the company has helped FinTechs and banks collaborate. Now the company will provide its offerings directly to banks, as traditional financial institutions manage their own FinTech relationships.
BaaS vendor changes happen in context PYMNTS intelligence noticed Approximately two-thirds of banks and credit unions have entered into at least one FinTech partnership in the past three years, with 76% of banks deeming FinTech partnerships necessary to meet customer expectations.
See more in: acquisitions, Baas, banking, Bank as a service, Evolve Bank and Trust, financial services, FinTech, Mercury, News, PIMNTI news, Synapses, Synapse financial technologies, TabaPay