The recent collapse of fintech intermediary Synapse has caused a massive disruption in the financial lives of thousands of Americans. Customers of popular fintech apps such as Yotta, Juno, and Copper have been locked out of their accounts for over two months. However, there may finally be some relief in sight as banks involved in the debacle are making progress in piecing together account information for stranded customers.
It has been reported that banks like Evolve Bank & Trust and Lineage Bank have hired a former Synapse engineer to help unlock data from the failed fintech intermediary. This move has resulted in significant headway, and there is hope that funds may be released to customers in the coming weeks. The sudden optimism among key players involved in the negotiations, including Evolve founder Scot Lenoir, is a stark contrast to the previous gridlock that had been plaguing the situation.
Regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., have been pressuring the banks involved to release funds to customers. Federal Reserve Chair Jerome Powell has urged Evolve to do everything possible to make money available to depositors. The development comes after media and lawmakers have brought heightened awareness to the debacle, putting additional pressure on the banks to find a resolution.
The situation has been further complicated by shoddy record-keeping and a lack of funds to pay for a forensic analysis. Bankruptcy trustee Jelena McWilliams has highlighted the challenges in determining who is owed what due to these factors. The episode has shed light on the shortcomings of small banks involved in the “banking-as-a-service” sector and their failure to properly manage unregulated partners like Synapse.
While there is hope that a full reconciliation of customer accounts is possible, there are still significant challenges to overcome. Up to $96 million owed to customers is currently missing, and it remains unclear how the main banks involved, including Evolve, Lineage, AMG National Trust, and American Bank, will address this shortfall. The uncertainty surrounding the situation could hinder repayment efforts and further delay the release of funds to customers.
The confusion surrounding the ownership and control of customer funds has only added to the complexity of the situation. Evolve Bank recently filed a response to FINRA, seeking to clarify that while it holds some payment processing funds, deposits from the app Yotta migrated to a network of banks in late October 2023. This conflicting information has only added to the uncertainty surrounding the resolution of the frozen fintech accounts.
While there may be a glimmer of hope for customers affected by the frozen fintech accounts, the challenges ahead are significant. The collaboration between banks and regulators, as well as the efforts to untangle the mess left by the collapse of Synapse, will be crucial in determining how and when funds are released to stranded customers. It is a complex situation that highlights the risks and complexities of the fintech industry, and it serves as a reminder of the importance of proper oversight and risk management in the financial sector.