A group of senators is demanding that Synapse’s owners, along with their bank and fintech partners, immediately restore access to customer funds. The senators blame these partners and investors for the missing money.
On Monday, U.S. Senator Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, together with Senators Ron Wyden (D-OR), Tammy Baldwin (D-WI), and John Fetterman (D-PA), publicly called out that customers of companies partnering with Synapse haven’t been able to access their money since mid-May.
The letter was addressed to W. Scott Stafford, president and CEO of Evolve Bank & Trust, but was also sent to major investors in Synapse and the company’s primary bank and fintech partners. The recipients included former Synapse CEO Sankaet Pathak; venture firms Andreessen Horowitz, Core Innovation Capital, and Trinity Ventures; American Bank; AMG National Trust; Trust and Lineage Bank; and fintech companies Copper, Juno, Mercury, Yieldstreet, and Yotta.
San Francisco-based Synapse provided a service allowing other companies, mainly fintechs, to embed banking services into their offerings. For instance, a software provider specializing in payroll for 1099 contractors used Synapse for instant payments, and others used it for specialized credit/debit cards. Until last year, Synapse served as an intermediary between Evolve Bank & Trust and business banking startup Mercury, but was cut out when Evolve and Mercury started working directly with each other.
Synapse raised over $50 million in venture capital, including a $33 million Series B round in 2019 led by Andreessen Horowitz. However, in 2023, the company faced layoffs and filed for Chapter 11 bankruptcy in April, hoping to sell its assets in a $9.7 million deal with another fintech, TabaPay. The deal fell through for unclear reasons, and Synapse eventually filed for Chapter 7 bankruptcy in May, leaving customers without access to their funds.
The senators are holding all involved parties accountable, including the venture capitalists who backed Synapse, emphasizing their responsibility to ensure the safety and accessibility of customer funds. They urged everyone to work together to immediately release all frozen deposits.
The letter states: “Each of you is responsible for the customers who have been frozen out of their accounts. Consumer-facing fintech firms marketed their products as safe, reliable alternatives to banks. Because of those promises, consumers adopted their products and made deposits through their apps and websites. Venture capital firms funded Synapse without insisting on adequate controls to protect consumers. They stood to profit while Synapse billed itself as a trustworthy financial infrastructure provider. But they failed to make sure that Synapse could follow through on its commitments. Banks joined with Synapse in an effort to find new revenue streams. These partnerships further made it possible for Synapse to market services ultimately provided by the banks.”
The senators also expressed concern about a potential shortfall of $65 to $96 million between what consumers are owed and the funds held on their behalf by Synapse’s partner banks, calling it “deeply troubling and completely unacceptable.” They emphasized that the priority is to restore consumers’ access to their money while the investigation into responsibility continues.
They criticized the banking-as-a-service model, stating that the Synapse bankruptcy has revealed the weaknesses of this business model, depriving Americans and small businesses of access to their money.
This past week has been tumultuous for the banking-as-a-service sector. On June 26, Evolve Bank announced a cyberattack and data breach affecting its partner companies, including Affirm, Mercury, Bilt, Alloy, and Stripe. On June 29, fintech company Wise revealed that some of its customers’ personal data might have been stolen in the breach. Additionally, Thread Bank, a popular partner to BaaS startups, faced enforcement action from the FDIC, with specific criticism of its Banking-as-a-Service and Loan-as-a-Service programs.
