The collapse and bankruptcy of BaaS fintech company Synapse has shed light on the challenges faced by the interconnected fintech industry when a key player falters.
Synapse provided a platform for other businesses, particularly fintechs, to integrate banking services into their products. For example, one software provider specializing in payroll for contractor-heavy businesses utilized Synapse to offer instant payment options, while others used it to provide customized credit and debit cards.
Initially backed by over $50 million in venture capital, including a significant investment from Andreessen Horowitz in 2019, Synapse began to struggle in 2023, leading to layoffs and eventually filing for Chapter 11 bankruptcy in April of the current year. Attempts to sell its assets in a $9.7 million deal to another fintech, TabaPay, ultimately fell through, resulting in calls for Synapse to liquidate entirely under Chapter 7. This has had a ripple effect on other fintech companies like Juno, Yotta, and Yieldstreet, impacting their customers as well.
The aftermath of Synapse’s downfall has raised doubts about the viability of the banking-as-a-service model and the overall concept of digital banking, especially as millions of consumers with nearly $160 million in deposits remain unable to access their funds.
Here is an overview of the timeline of events surrounding Synapse’s troubles and the ongoing repercussions for banking consumers.
2024
Founder raises $11 million for a new startup
August 22: Sankaet Pathak launches Foundation, a robotics startup aimed at automating GDP through AI and Robotics to enable people to pursue their passions by freeing them from labor-intensive jobs.
Nearly $160 million in funds still frozen
July 7: Fintech Business Weekly reports that significant funds, approximately $158.6 million, remain frozen, with additional missing funds estimated at $65 million to $95 million. Efforts to release these funds have been slow, leaving end users in a precarious position.
Senators urge Synapse and its partners to restore customers’ access to their money
July 1: A group of senators calls for Synapse’s owners, bank, and fintech partners to take immediate action to restore customers’ access to their funds, placing responsibility on both partners and venture investors for the missing customer funds.
Synapse CEO moves on to start another company
June 12: Despite ongoing questions about missing customer savings, Synapse’s CEO, Sankaet Pathak, secures $10 million in funding for a new robotics startup.
Fallout continues, impacting more fintechs and consumers
May 25: By the end of May, approximately 100 fintechs and 10 million end customers were affected by Synapse’s collapse. Companies like Juno, Yotta, and Mainvest suffered financial repercussions due to their association with Synapse.
U.S. Trustee seeks Chapter 7 conversion
May 16: A U.S. Trustee files an emergency motion to convert Synapse’s Chapter 11 bankruptcy into Chapter 7 liquidation, citing mismanagement of assets and a lack of reorganization prospects.
Customer teen banking startup Copper discontinues operations
May 13: Synapse’s customer, Copper, halts its banking services, leaving families without access to their deposited funds.
Sale of assets canceled
May 9: TabaPay withdraws from the deal to purchase Synapse’s assets, leading to disputes among involved parties regarding the reasons behind the failed transaction.
Synapse files for Chapter 11 bankruptcy, assets set to be sold for $9.7 million
April 22: Synapse files for Chapter 11 bankruptcy with plans to sell its assets to TabaPay, a deal that ultimately falls through.
2023
Synapse lays off staff, tension with Evolve Bank reported
October 13: Synapse faces issues with partner Evolve Bank & Trust, leading to layoffs and strained relationships between the companies.
October 6: Synapse confirms significant layoffs due to economic conditions impacting their clients and operations, despite a prominent investment in 2019.
Note: This article was updated to clarify that Synapse has not yet converted to Chapter 7.
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