After a tumultuous year, the banking-as-a-service (BaaS) startup. Synapse has filed for Chapter 11 bankruptcy and its assets will be acquired by TabaPay, according to the two companies.
The deal is pending bankruptcy court approval.
Founded in 2017 and based in Mountain View TabaPay is an instant money transfer platform backed by SoftBank in a 2022 round of an undisclosed amount. It’s unclear how much venture capital it has raised.
based in San Francisco Synapse, which operated a platform that allowed banks and financial technology companies to develop financial services; it was was founded in 2014 by Bryan Keltner and Indian-born CEO Sankaet Pathak.
In 2019, TechCrunch reported on the company Raises $33M Series B; led by Andreessen Horowitz after rebranding from SynapseFi. This was the company’s last known fundraiser. In total, it raised just over $50 million in venture capital. Other backers include Trinity Ventures and Core Innovation Capital.
In announcing the acquisition, TabaPay pointed out that Synapse did Deloitte’s 2023 Fast 500, growing 650%+ in five years. However, it has had two large-scale layoffs in the past year, blaming slowing growth.
Last October Synapse 86 people were laid off, or about 40% of the company. This comes after the startup previously let go of 18% of its workforce last June. At the time, Synapse said “current macroeconomic conditions” had begun to impact its customers and platforms, impacting its expected growth.
In addition to laying off staff, Synapse also ran into difficulties last year after acting as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury. When Evolve and Mercury decided to end their respective relationships with Synapse and work directly with each other, Evolve and Synapse reported in opposition to each other as the relationship ended.
Specifically, the entities allegedly blamed each other “over who was responsible for a ‘deficit’ of more than $13 million in ‘beneficiary’ accounts that held client funds at Evolve, among a myriad of other issues” dating back at least three years before. Neither company ever looked into the allegations.
In a Medium suspensionPathak declared himself “thrilled” with the acquisition, writing: “By leveraging TabaPay, customers will join a thriving ecosystem of 15 banking partners, 16 network connections, 2,500+ existing customers and collective team domain expertise.”
Rodney Robinson, TabaPay’s co-founder and CEO, said in a written statement that Synapse’s assets would be a “great and natural fit” to its existing services to grow its offerings “while providing continuity to customers and Synapse banks’.
Banking problems as a service
The banking-as-a-service space as a whole has been in turmoil lately. Several industry players have announced layoffs over the past year. Most recently, Synctera cut about 15% of its staff. Treasury Prime cut half of its 100-person staff in February, one year after the announcement raising $40 million Series C;. Figure Technologies, which includes Figure Pay, fired 90 people — or about 20% of its workforce — last July.
Meanwhile, Piermont Bank reportedly cut ties with startup Unit recently, Fintech Business Weekly reported.
BaaS refers to various types of business models, such as offering banking services to other industry players. or providing the charter and banking services, but not taking on liability; or offering banking components, which is more of a fintech that is not a bank but provides some bank-like services without a charter.
Players in BaaS have faced challenges, particularly regulatory crackdowns in 2023. For example, those providing BaaS to fintech partners accounted for more than 13% of strict enforcement measures by federal bank regulators last year. S&P Global Market Intelligence Reports.
Rohit Mittal, its co-founder and CEO Stilt, which offers financial products and resources for immigrants, knows a little about it. His company was acquired by JG Wentworth in late 2022.
Mittal noted in a post on X that despite banking-as-a-service being around for a decade, it’s still an industry without many billion-dollar businesses, writing, “Investors burned through $1B+ and created less value than that. The whole industry is still very small in terms of value created through expenses.”
He provided examples including Synapse and Proceedings of Solid with an investor FTV Capital went public last October, in which FTV asked for a refund.
As for Solid, co-founder and CEO Arjun Thyagarajan told TechCrunch via email earlier this month that “the case has been settled and therefore FTV is no longer involved in the business.”
There has been other M&A activity. Last June, FIS, the fintech giant that operates a wide range of payment, banking and investment services, announced that it had got Bonda startup that specialized in embedded finance.
Want more fintech news in your inbox? Subscribe to TechCrunch Fintech here.
Want to get in touch with a tip? Email me at maryann@techcrunch.com or send me a message on Signal at 408.204.3036. You can also send a note to the entire TechCrunch crew at tips@techcrunch.com. For more secure communications, click here to contact uswhich includes SecureDrop (instructions here) and links to encrypted messaging applications.
