Fintech

The Rise and Fall of Synapse: A Fintech Cautionary Tale

By Business OutstandersPUBLISHED: July 14, 22:33UPDATED: July 15, 12:05
The Rise and Fall of Synapse: A Fintech Cautionary Tale

The collapse and bankruptcy of the Banking-as-a-Service (BaaS) fintech company, Synapse, underscores the precarious nature of the interdependent fintech ecosystem. When a key player like Synapse stumbles, the ripple effects can be widespread and severe.

Synapse offered a platform enabling other companies, primarily fintechs, to integrate banking services into their products. For instance, a payroll software provider for 1099 contractors used Synapse for instant payment features, while others leveraged it for specialized credit and debit card offerings.

Based in San Francisco, Synapse raised over $50 million in venture capital, including a significant $33 million Series B round in 2019 led by Andreessen Horowitz’s Angela Strange. However, the company began to struggle in 2023, leading to layoffs and eventually filing for Chapter 11 bankruptcy in April 2024. Synapse hoped to sell its assets in a $9.7 million fire sale to another fintech company, TabaPay, but the deal fell through. This forced Synapse into Chapter 7 liquidation, leaving numerous fintechs and their customers facing significant disruptions.

A Timeline of Troubles and Impact

2024

July 7: Nearly $160 million in customer funds remain frozen, with efforts to release these funds progressing slowly. Reports indicate that between $65 million to $95 million of these funds are missing.

July 1: A group of senators urged Synapse’s owners, partners, and venture investors to restore customer access to their funds immediately, highlighting the accountability of all parties involved.

June 12: Synapse’s CEO, Sankaet Pathak, moved on to start a new robotics company, raising $10 million despite unresolved questions about $85 million in missing customer savings.

May 25: Synapse’s collapse impacted up to 100 fintechs and 10 million end customers by the end of May. Some companies, like crypto app Juno and banking platform Yotta, saw their funds affected, while fintech lender Mainvest shut down due to the fallout.

May 16: A U.S. trustee pushed to convert Synapse’s Chapter 11 bankruptcy to Chapter 7, citing gross mismanagement and ongoing losses with little chance of successful reorganization.

May 13: Teen banking startup Copper, a Synapse customer, had to abruptly discontinue its banking operations, leaving many families without access to their deposited funds.

May 9: TabaPay abandoned its plans to purchase Synapse’s assets, leading to finger-pointing between Synapse’s CEO and banking partner Evolve Bank & Trust. Mercury, another involved party, also denied responsibility.

April 22: Synapse filed for Chapter 11 bankruptcy, initially planning to sell its assets to TabaPay for $9.7 million, pending court approval. The deal later collapsed.

2023

October 13: Evolve Bank & Trust and digital bank Mercury ended their relationships with Synapse, choosing to work directly with each other amid rising tensions.

October 6: Synapse laid off 86 employees, about 40% of its workforce, following a previous layoff of 18% due to challenging macroeconomic conditions affecting its growth projections.

Conclusion

The demise of Synapse has left many questioning the viability of the BaaS model and the broader digital banking sector. With millions of consumers unable to access nearly $160 million in deposits, the situation highlights the potential risks and vulnerabilities in the fintech landscape. As the industry grapples with these challenges, the Synapse saga serves as a stark reminder of the interconnectedness and fragility of modern financial technology.