A group of senators has rallied to urge Synapse’s owners and bank and fintech partners to “immediately restore customers’ access to their money.” As part of their demands, the senators implicated both the firm’s partners and investors as responsible for the loss of client funds.
In a letter publicly shared on Monday, US Senator Sherrod Brown (D-OH), Chairman of the Senate Banking, Housing and Urban Affairs Committee, along with Senators Ron Wyden (D-OR), Tammy Baldwin (D-WI) and John Fetterman ( D-PA) pointed out that customers of companies that partnered with banking-as-a-service startup Synapse have not been able to access their money since mid-May.
The letter was addressed to W. Scott Stafford, president and CEO of Evolve Bank & Trust, but was also sent to major investors in Synapse, as well as the company’s key bank and fintech partners. Recipients include former Synapse CEO Sankaet Pathak; venture capital firms Andreessen Horowitz, Core Innovation Capital and Trinity Ventures. Bank of America? AMG National Trust; Trust and Lineage Bank. and fintech companies Copper, Juno, Mercury, Yieldstreet and Yotta.
San Francisco-based Synapse operated a service that allowed others (mainly fintechs) to integrate banking services into their offerings. For example, a software provider specializing in payroll for 1099 heavy contractor businesses used Synapse to provide an instant payment capability. others used it to offer specialized credit/debit cards. Until last year, it provided such services as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury until Evolve and Mercury decided to work directly with each other and cut out Synapse as an intermediary.
Synapse has raised a total of just over $50 million in venture capital over its lifetime, including a $33 million Series B raise in 2019 led by Angela Strange of Andreessen Horowitz. The startup wobbled in 2023 with layoffs and filed for Chapter 11 in April of this year, hoping to sell its assets in a $9.7 million sale to another fintech, TabaPay. But TabaPay walked. It’s not entirely clear why. Synapse put a lot of the blame on Evolve and Mercury, who both threw up their hands and told TechCrunch they weren’t responsible. Synapse CEO and co-founder Sankaet Pathak did not immediately respond to our requests for comment.
As a result, Synapse was forced to file for Chapter 7 bankruptcy in May, completely liquidating its business. Customers have been frozen ever since.
Government officials were not letting fintech partners off the hook, citing their role in the situation.
In their letter, the senators said it was the responsibility of all the various actors – including the VCs who had backed them – “to ensure the safety and accessibility of end-user funds”.
They urged everyone to work collectively to make all customer deposits currently frozen due to Synapse’s bankruptcy immediately available.
Specifically they wrote: “Each of you is responsible for the customers who have frozen their accounts. Consumer-facing fintech companies marketed their products to the public as safe, reliable alternatives to banks. Because of these promises, consumers adopted their products and made deposits through their apps and websites. Venture capital firms funded Synapse without insisting on adequate controls to protect consumers. They made a profit while Synapse was billed as a reliable provider of financial infrastructure. But they failed to make sure that Synapse could keep its commitments. Banks joined Synapse in an effort to find new revenue streams. These partnerships further enabled Synapse to commercialize services that were ultimately provided by banks.”
The senators also expressed concern and concern over “the potential $65 million to $96 million shortfall between what is owed to consumers and the funds held on their behalf by Synapse’s partner banks,” calling it “both deeply troubling and completely unacceptable”.
They added: “In due course we will find out who is ultimately responsible for this mess, but in the interim, the priority must be to restore consumer access to all from their money”.
In their letter, the senators also took a swipe at the banking-as-a-service model as a whole, saying Synapse’s bankruptcy “has exposed the inherent weaknesses of this three-party business model and caused the devastation of hard-working Americans and small businesses. denied access to their own money.”
This past week has been full of drama in the world of service banking. On June 26, Evolve Bank announced that it was the victim of a cyber attack and data breach that could affect its partner companies as well. The happening, according to the company, involved “the data and personal information of certain Evolve retail bank customers and financial technology partner customers,” including Affirm, Mercury, Bilt, Alloy and Stripe. On June 29, fintech company Wise announced that some of its customers’ personal data may have been stolen due to the data breach. Also last week, Thread Bank – a popular partner in BaaS startups such as Unit – took hit with forced action from the FDIC. Specifically, the command issued to the Thread, as a post Payments he noted, “is unique in that it specifically calls out the bank’s Banking-as-a-Service (BaaS) and Loan-as-a-Service (LaaS) programs.”
TechCrunch has reached out to both Evolve Bank and former Synapse CEO Sankaet Pathak for comment. Evolve declined to comment.
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