When a major fintech company providing crucial backend services to other firms experiences troubles, the ripple effects can be far-reaching. That's been evidenced by the ongoing bankruptcy saga of Synapse, a San Francisco-based bank-as-a-service provider whose collapse has impacted nearly $160 million in user deposits across multiple fintech apps.
Synapse operated a platform that allowed fintechs and other software firms to offer embedded banking and payment solutions to their customers. However, the company started experiencing turbulence last year with layoffs and struggles to maintain growth. This April, Synapse filed for Chapter 11 bankruptcy and attempted to sell its assets, though a proposed acquisition fell through shortly after.
With no path forward in sight, the bankruptcy was converted to a Chapter 7 liquidation in May. This triggered widespread fallout, as Synapse's various fintech partners like payroll app Juno and investment app Yotta could no longer provide banking services to users due to the loss of Synapse's infrastructure. It left millions without access to accounts holding around $158.6 million in aggregate deposits.
Several other fintechs were also severely impacted. Crypto app Juno and lending platform Mainvest were among those forced to discontinue deposit and card offerings. Meanwhile, youth banking app Copper had to abruptly close all customer accounts. Senators have called on those involved to restore funds, but most of the $158.6 million remains inaccessible months later as reconciliation continues at a slow pace.
While services to rebuild trust in the fintech space are still in high demand, Synapse's troubles serve as a cautionary reminder of the interconnected risks inherent in the rapidly evolving digital banking ecosystem. When one link in the fragile chain breaks down, millions of consumers can find themselves locked out of their savings in an instant.
