FinTech Crisis Leaves Millions Of Americans Unable To Access Their Money

Neobanks like Yotta, Juno, and Copper had grown in popularity over the last few years. These banking apps were not actual banks - rather they were banking services that used technology to connect their apps to real bank accounts at partner banks.

Synapse Financial Technologies was one of the largest providers of these "banking as a service" solutions, and it has found itself in bankruptcy and shutting down. For the banking services and partner banks, this has created a severe disruptions that has left potentially millions of Americans without access to their funds for nearly two weeks. 

Distress For Consumers

Reddit threads and court documents have revealed the gravity of the situation. Individuals are claiming that they cannot access their funds, pay bills, and are worried about how they are going to pay rent next month. Furthermore, direct deposits from payroll providers may actually deposit funds into these inaccessible accounts - causing even more money to be locked up.

One of the largest banking providers, Evolve Bank and Trust, has said they need the ledgers from Synapse to reconcile the customer accounts opened at their bank. Customers are worried that the balances may end up incorrect after this is all sorted out.

Furthermore, the FDIC, Federal Reserve, the President, and Congress have all been silent about the crisis.

Scope Of The Problem

Synapse was one of the largest players in the “banking as a service” space, which allows fintech startups to offer banking services by partnering with FDIC-backed banks. According to an April filing by Synapse founder and CEO Sankaet Pathak, the company had contracts with 20 banks and 100 fintech firms, serving approximately 10 million end users.

These partnerships allowed FinTech companies and neobanks to advertise themselves as "FDIC-insured", giving customers a sense of security for their funds should something happen. In general, when traditional banks fail, customers can resume their normal banking activity within days. In this case, customers have effectively been locked out of their accounts for weeks.

Furthermore, there are concerns this could cause a bank run for some of these partner banks. When banking access is restored, millions of consumers will immediately remove their funds from these banks. The effective of that large-scale withdrawal is unknown.

Already, several of the impacted companies have announced they are ceasing operations. Copper, with almost 1 million users, announced on May 13 they are simply shutting down and will work to ensure customer funds are returned. However, customers are still waiting.

MainVest, an investment firm, announced that it will be ceasing operations on June 14, 2024 as the result of the Synapse and Evolve situation.

FinTechs With Funds Affected

According to a court filing, as of May 14, 2024, the following companies may have had funds impacted. Simply having funds does not mean that business is disrupted, but it's clearly having an impact on many of these firms:

• Yotta
• Juno
• Money App
• Changed
• Curacubby
• Gigwage
• Yieldstreet
• BOSS Money
• Homebase
• Snap! Spend
• Namebase
• Clerkie
• Build
• SeedFi (acquired by Credit Karma)
• Donut
• Microventures
• Mazoola
• UNEST
• Alice
• ClassWallet
• Dave
• Goalsetter
• Hyve
• EarnUp
• Banpay
• Fund The Flip (rebranded Upright)
• Grabr
• Abound
• Copper
• Trim (acquired by OneMain Financial)
• DishOut
• GravyStack
• Truebill (rebranded RocketMoney)
• INX Secuurities
• Mooch
• PayStand

Next Steps

Customers are waiting for regulatory agencies to act. The FDIC and Federal Reserve have so far not intervened, which has caused significant issues for consumers. 

The bankruptcy court where the Synapse hearings are taking place are trying to resolve the issue, but that doesn't help consumers that cannot access their money today.

Consumers need to be mindful when using banking as a service financial apps - the protections of using these apps are not the same as traditional banks. And regulators need to take a more effective approach at dealing with this type of situation.

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