Customers Are Synapse's Collateral Damage. New Fintech Regs Can Fix That.

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Customers Are Collateral Damage in the Synapse Fiasco. New Fintech Regulation Can Fix That.

Unless you’ve been living under a rock the past three months, you’ve likely noticed the widening fallout from Synapse Financial’s collapse and subsequent bankruptcy—and every bank and fintech partner swept up in it—continues to raise serious operational questions, cause lingering angst for customers still unable to access their money, and yet is utterly devoid of soul searching on the part of executives responsible for what transpired.

Synapse, a Banking-as-a-Service (BaaS) provider backed by prominent venture capitalists, worked with as many as 100 bank and fintech partners, including Evolve Bank & Trust, Lineage Bank, Mercury, Dave, Yotta, Juno Finance, Copper, and Yieldstreet, serving as the intermediary between bank partners providing deposit accounts, loans and payment products and the fintechs that embed them into their customer apps.

As the enormity of U.S. bankruptcy trustee Jelena McWilliams’ findings became public, what was also glaringly obvious: Some of the companies involved were so busy pointing fingers at each other that they failed to acknowledge that customers—all of whom were unwittingly tied to Synapse and its bank partners through their usage of fintech apps—have become collateral damage.

That must change.

The situation has become so dire—or, at least, publicly damning—that a group of U.S. senators, led by Democratic Senator Sherrod Brown, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, issued a letter to Evolve Bank & Trust CEO W. Scott Stafford that was also sent to former Synapse CEO Sankaet Pathak, who has already moved on, raising $10 million to bankroll his new robotics venture; Synapse investors Andreessen Horowitz, Core Innovation Capital, and Trinity Ventures; bank partners American Bank, AMG National Trust, and Lineage Bank; and fintech partners Copper, Juno, Mercury, Yieldstreet, and Yotta, urging them “to collectively pool the necessary resources to immediately make available all customer deposits currently frozen by the Synapse bankruptcy,” ending what they see as “the uncertainty and financial damage caused to consumers.” (Small business customers were also affected by the bankruptcy.)