The fintech industry has been booming in recent years, offering innovative solutions for personal finance management. However, a recent incident has highlighted the risks associated with investing in these types of companies. In May of this year, a fintech intermediary by the name of Synapse filed for bankruptcy, leaving over 100,000 Americans out of $90 million in life savings.
One of the victims of this financial disaster is Kayla Morris, a former teacher from Texas who had saved over $280,000 to buy a larger home for her growing family. She and her husband had transferred the money into the fintech app Yotta, believing it to be a safe investment. However, after the bankruptcy of Synapse, the bank responsible for repaying customers’ money, Evolve Bank & Trust, informed Morris that they would only be receiving $500 out of the $280,000 they had invested. The situation was devastating for Morris and her family, as they had lost a significant portion of their life savings.
Another victim, Zach Jacobs, had $94,468.92 invested in the Yotta app and was only able to recover less than $130 after the bankruptcy. Many of the victims of Synapse’s collapse had never even heard of the company before May 11, when the news broke. Yotta and Juno, two popular gamified personal investing platforms, had leveraged Synapse’s capabilities to manage their customers’ funds. However, with Synapse’s bankruptcy, over $90 million of customer funds remain missing, leaving investors in a state of financial uncertainty.
So how did a fintech intermediary like Synapse become involved in such a financial catastrophe? Synapse was founded in 2014 with funding from Andreessen Horowitz, a well-known venture capital firm. The company aimed to help fintech companies like Yotta and Juno provide banking services without the need for banking licenses. Since these fintech platforms are not covered by the Federal Deposit Insurance Corporation (FDIC), they must partner with FDIC-insured banks to hold their customers’ funds in special accounts. This is where Synapse came in, acting as a middleman for bookkeeping and ledger maintenance.
Before its bankruptcy, Synapse had contracts with 100 fintech companies, representing over 10 million end users. When the company declared bankruptcy in April, its banking partners lost access to a vital system for identifying company records. This led to chaos in the system, with end-users having their funds tied up and banks unable to determine who had deposited what. The FDIC proposed a new record-keeping rule in response to the incident, requiring more robust ledger-keeping for bank deposits received from fintech companies.
As the fallout from Synapse’s bankruptcy continues, partner banks are working to reconcile with customers. A recent lawsuit reported that between $65 million to $95 million of the $265 million in funds held by Synapse is missing. The victims of this financial disaster, like Kayla Morris and Zach Jacobs, are left with pennies on the dollar of their life savings, highlighting the risks associated with investing in fintech companies.
In conclusion, the collapse of Synapse has left a trail of devastation for thousands of investors who trusted their life savings to the fintech intermediary. The incident has raised questions about the safety and regulation of the fintech industry, and serves as a cautionary tale for those considering investing in these types of companies. As the legal battles continue and the missing funds remain unaccounted for, the victims of this financial disaster are left to pick up the pieces of their shattered financial dreams.
