The collapse and bankruptcy of BaaS fintech Synapse has revealed the vulnerability within the interdependent fintech sector when a key player encounters trouble.
Synapse provided services enabling other fintechs to integrate banking functions into their products. For example, a payroll software provider for 1099 contractor-heavy businesses used Synapse for instant payments, while others utilized it for specialized credit/debit cards.
Based in San Francisco, Synapse raised over $50 million in venture capital, including a $33 million Series B in 2019 led by Andreessen Horowitz’s Angela Strange. Synapse faced challenges in 2023 with layoffs and filed for Chapter 11 bankruptcy in April, hoping to sell its assets for $9.7 million to TabaPay. However, TabaPay withdrew.
Consequently, Synapse liquidated entirely under Chapter 7, affecting many fintechs such as Juno, Yotta, and Yieldstreet, along with their customers.
This situation has led to skepticism about the banking-as-a-service model and digital banking, as millions of consumers with nearly $160 million in deposits remain unable to access their funds.
Here is a timeline of Synapse’s troubles and the ongoing impact on banking consumers.
2024
Nearly $160 million in funds still frozen July 7: Reports indicate a recent status conference in the ongoing Synapse bankruptcy offered little hope for users with frozen funds, with efforts to release approximately $158.6 million slowing. An estimated $65 million to $95 million in funds were missing.
Senators urge Synapse and its partners and backers to restore customers’ access to their money July 1: A group of senators urged Synapse’s owners, bank, and fintech partners to “immediately restore customers’ access to their money.” They implicated partners and venture investors as responsible for the missing funds.
Synapse CEO moves on to starting another company June 12: Synapse’s CEO Sankaet Pathak reportedly raised $10 million for a new robotics startup while questions remained about the whereabouts of $85 million in Synapse’s customer savings.
Fallout continues, more fintechs and millions of consumers affected May 25: Synapse’s filings indicated that up to 100 fintechs and 10 million customers were affected by the collapse by the end of May. Funds at crypto app Juno and banking platform Yotta were impacted, and fintech lender Mainvest shut down as a result.
U.S. Trustee pushes for Chapter 7 May 16: A U.S. trustee filed a motion to convert Synapse’s Chapter 11 bankruptcy into Chapter 7 liquidation, citing gross mismanagement and ongoing losses with little likelihood of reorganization.
Customer Teen Banking Startup
Copper discontinues its banking operations May 13: Teen banking startup Copper had to discontinue its banking deposit accounts and debit cards due to Synapse’s issues, leaving many consumers without access to their funds.
Sale of assets called off May 9: TabaPay abandoned its plans to purchase Synapse’s assets, leading to finger-pointing. Synapse’s CEO blamed banking partner Evolve Bank & Trust, which denied involvement. Mercury also denied the allegations.
Synapse files for Chapter 11 bankruptcy, assets to be sold off for $9.7 million April 22: Synapse filed for Chapter 11 bankruptcy, announcing that its assets would be acquired by TabaPay, pending court approval. TabaPay later withdrew from the deal.
2023
Synapse lays off staff, and reports of tension with partner Evolve Bank arise October 13: Evolve Bank & Trust and digital bank Mercury ended their relationships with Synapse and began working directly together.
October 6: Synapse confirmed layoffs of 86 people, about 40% of the company, following an 18% workforce reduction four months earlier due to macroeconomic conditions affecting growth. In 2019, the company raised $33 million in Series B funding after rebranding from SynapseFi.
