A group of senators have come together to urge Synapse’s owners and its banking and fintech partners to “immediately restore customers’ access to their funds.” As part of their demands, the senators hold both the company’s partners and investors responsible for the loss of customer funds.
In a message Shared publicly On Monday, U.S. Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking, Housing and Urban Affairs Committee, along with Sens. Ron Wyden (D-Oregon), Tammy Baldwin (D-Wis.), and John Fetterman (D-Pa.), noted that customers of businesses that partnered with banking-as-a-service startup Synapse have been unable to access their funds since mid-May.
The letter was addressed to W. Scott Stafford, chairman and CEO of Evolve Bank & Trust, but was also sent to Synapse’s major investors, as well as the company’s lead bank and fintech partners. Recipients included former Synapse CEO Sanket Pathak; venture capital firms Andreessen Horowitz, Core Innovation Capital and Trinity Ventures; American Bank; AMG National Trust; Trust & Lining Bank; and fintech firms Cooper, Juno, Mercury, Yield Street and Utah.
San Francisco-based Synapse ran a service that allowed others (particularly fintechs) to include banking services in their offerings. For example, a payroll software provider for companies that rely heavily on contractors used Synapse to provide instant pay; others used it to offer specialized credit/debit cards. Until last year, it offered these types of services as an intermediary between its banking partner Evolve Bank & Trust and corporate banking startup Mercury, until Evolve and Mercury decided to work directly with each other and cut Synapse out as an intermediary.
Synapse has raised just over $50 million in venture capital in its lifetime, including a $33 million Series B round in 2019 led by Andreessen Horowitz’s Angela Strange. The startup stumbled into 2023 with layoffs and filed for bankruptcy in April of this year, hoping to sell its assets in a $9.7 million fire sale to another fintech, TabaPay. But TabaPay pulled out. It’s not entirely clear why. Synapse has pinned much of the blame on Evolve and Mercury, both of whom threw up their hands and told TechCrunch they were not to blame. Synapse’s CEO and co-founder, Sanket Pathak, did not respond to requests for comment.
As a result, Synapse was forced to file for Chapter 7 bankruptcy in May, effectively liquidating its entire business. Clients have since been cut off from the company.
Government officials have not let fintech partners off the hook, citing their role in the situation.
In their letter, the senators said it was the responsibility of all the different players — including the venture capital firms that backed them — to “ensure the safety and accessibility of end-user funds.”
They urged everyone to work collectively together to make available all customer deposits currently frozen due to Synapse’s bankruptcy immediately.
Specifically, they wrote: “Each of you is responsible for the customers whose accounts have been frozen. Consumer-facing fintech companies marketed their products to the public as safe and reliable alternatives to banks. Consumers embraced their products and deposited money through their apps and websites because of these promises. Venture capital firms funded Synapse without insisting on adequate controls to protect consumers. They stood to make a profit while Synapse presented itself as a trustworthy financial infrastructure provider. But they failed to ensure that Synapse could meet its obligations. Banks joined Synapse in an attempt to find new revenue streams. These partnerships also enabled Synapse to market services that banks ultimately provided.”
The senators also expressed concern and alarm about the “potential $65 million to $96 million shortfall between what consumers are owed and the funds Synapse’s partner banks hold on their behalf,” calling it “deeply troubling and completely unacceptable.”
“In time we will find out who is ultimately responsible for this mess, but in the meantime, the priority must be to restore consumers’ access to everyone “From their money.”
In their letter, the senators also criticized the banking model as a whole, saying Synapse’s bankruptcy “exposed the inherent weaknesses of this tri-partisan business model and left hard-working Americans and small businesses without access to their own money.”
Last week was full of drama in the world of banking. On June 26, Evolve Bank announced that it had been the victim of a cyber attack and data breach that could have affected its partner companies as well. According to the companyOn June 29, fintech company Wise announced that some of its customers’ personal data may have been stolen in a data breach. Also last week, Thread Bank — a popular partner of startups like lonliness – Owns Action has been taken against him. From the Federal Deposit Insurance Corporation. It is worth noting that the order issued to Thread, as in the publication Payments He pointed out that “this decision is unique because it explicitly refers to the Bank’s Banking as a Service (BaaS) and Loans as a Service (LaaS) programs.”
TechCrunch reached out to both Evolve Bank and former Synapse CEO Sankaet Pathak for comment. Evolve declined to comment.
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