Background
Behind most FinTechs is one of a handful of partner banks, common ones include: Evolve, Stearns, Sutton, Cross River, and Celtic, but there are others. Somewhere between an average FinTech and a partner bank you’ll sometimes also find a Banking-as-a-Service player, and there are even fewer of those. Common BaaS names that you may have heard of are Solaris Bank, Green Dot, and Solid.
NOTE: In case you’re wondering, Banking-as-a-Service is nicknamed BaaS because the finance industry often lacks creativity and tries to hide it with focus group generated names designed by committee to appeal to millennials on paper, but the names they arrive at don’t actually appeal to millennials in practice.
April Showers
Synapse, a somewhat popular BaaS platform, filed for bankruptcy in April and for the most part no-one noticed because everything seemed ok for FinTech platforms built using Synapse, because TabaPay (yet another BaaS) struck a deal immediately to buy Synapse’s assets and assume its business operations.
May Gray
A few days ago though, TabaPay announced that it was terminating its purchase agreement of Synapse because of issues with TabaPay’s partner bank, Evolve, funding accounts related to the transaction. Of course, just like a reality TV show, Evolve says that it’s not true because of course they did. Then, Evolve froze the assets of multiple FinTechs built on the Synapse platform because of course they also did that.
After the agreement was called off on Tuesday, a bankruptcy judge went on record to say that up to 20 million FinTech depositors are at risk due to Synapse’s bankruptcy and the failed deal. What does at risk here mean? It’s not fully clear, because typically a BaaS’s partner bank holds custodial accounts for customers and those are FDIC insured, but if they’re frozen and you can’t withdraw them, then FDIC insurance doesn’t mean anything for access to your cash. Additionally, depending on the financial structure of the custodial account, FDIC insurance may be insufficient too.
The Effect on FinTechs
Since Evolve froze FinTech accounts worth $114,000,000 related to Synapse this week, we’ve seen ripples through multiple FinTechs including Juno and Yotta, each of which have had their customers’ accounts frozen by Evolve. My personal, uninformed opinion after watching the Silicon Valley Bank drama is that the federal government won’t let FinTech users lose this money, but of course my opinion tends to have no bearing on reality.
The Advice you didn’t Ask For
Juno had been an interesting tool for manufactured spend at multiple points in the past, but that’s changed recently even without the Synapse drama. Some manufactured spenders still have significant funds on deposit that’s no longer accessible though, and there are indications of issues at other FinTechs too, including but not limited to Yotta. So, while the Miles Earn and Burn way is “always be probing”, I’d sit back on probing any FinTechs that might be involved with Synapse for the time being.
Good luck out there friends!
The finance community’s premier product and industry name committee.