The collapse and bankruptcy of fintech BaaS Synapse revealed how dangerous things are for the often interdependent world of fintech when a key player runs into trouble.
Synapse operated a service that allowed others (mainly fintechs) to integrate banking services into their offerings. For example, a software provider specializing in payroll for 1,099 outsourcing-heavy companies used Synapse to provide instant payment functionality; others have used it to offer specialized credit/debit cards.
The San Francisco-based startup has raised a total of just over $50 million in venture capital over its lifetime, including one in 2019. $33 million Series B raise directed by Andreessen Horowitz’s Angela Strange. Synapse faltered in 2023 with layoffs And filed for chapter 11 in April this year, hoping to sell its assets in a $9.7 million forced sale to another fintech, TabaPay. But TabaPay worked.
The result was that Synapse was asked to fully liquidate under Chapter 7 and many other fintechs such as Juno, Yotta and Yieldstreet – and their customers – are paying the price for Synapse’s demise.
The debacle left observers questioning the concept of banking-as-a-service and digital banking as a wholeknowing that millions of consumers with nearly $160 million in deposits still cannot access their funds.
Here’s a timeline of Synapse’s issues and their continued impact on banking consumers.
2024
Founder raises $11 million for new startup
August 22: Sankaet Pathak is full steam ahead on Foundationhis new robotics startup. On He also posted on August 20 on X that Synapse’s former partner, Evolve Bank, “needs to start paying customers and cover the deficit they created.”
Nearly $160 million in funds still frozen
July 7: Fintech Business Weekly reports that a recent “status conference in Synapse’s current bankruptcy did not offer much hope to end users whose funds were still frozen, with efforts to reconcile and release the remaining funds, approximately $158.6 million, appearing to slow down. This means that approximately $158.6 million was still owed to end users. However, it was estimated that between $65 million and $95 million in funds were missing.
Senators urge Synapse and its partners and backers to restore customers’ access to their money
July 1: A group of senators banded together to urge Synapse owners and banking and fintech partners to “Immediately restore customers’ access to their money. » As part of their demands, the senators blamed both the firm’s partners and venture capitalists as responsible for the lack of funds from clients.
Synapse CEO decides to start another company
June 12: Synapse CEO Sankaet Pathak reportedly already raised $10 million for a new robotics startup then even questions remained on locating the $85 million in savings realized by Synapse customers.
Fallout continues, more fintechs and millions of consumers affected
May 25: Based on documents filed by Synapse, up to 100 fintechs and 10 million end customers were potentially impacted by the company’s collapse at the end of May. For example, funds from crypto app Juno and banking platform Yotta were also affected by the collapse of Synapse. In the meantime, Mainvesta financial technology lender to restaurant businesses, said it was closing its doors as a result.
US administrator pushes for Chapter 7
May 16: A U.S. trustee filed an emergency motion to convert Synapse’s Chapter 11 bankruptcy debt reorganization into a liquidation Chapter 7. The trustee said Synapse had “grossly” mismanaged its assets, such that losses continued with little “reasonable likelihood of reorganization” that would allow the company to come out the other side and continue.
Teen banking startup Copper shuts down banking operations
May 13: Teen banking startup Copper, a Synapse client, had to do it abruptly discontinue bank deposit accounts and debit cards due to Synapse difficulties. This left an unknown number of consumers, mostly families, without access to the funds they had confidently deposited into Copper’s accounts.
Asset sale canceled
May 9: TabaPay declared that it had abandoned his plans to purchase Synapse’s assets. There were many criticisms when this agreement was dissolved. Synapse’s CEO blamed his banking partner Evolve Bank & Trust for the problem. And Evolve has denied the accusations, saying it was not involved and was not responsible. Meanwhile, another player in the saga, Mercury, said Synapse’s allegations had “no basis.”
Synapse files for Chapter 11 bankruptcy and its assets will be sold for $9.7 million
April 22: Synapse filed for Chapter 11 bankruptcy and stated at that time that its assets would be acquired by instant payments company TabaPaypending bankruptcy court approval. (Again, TabaPay would walk away from the deal a few weeks later.)
2023
Synapse lays off staff and reports of tensions with partner Evolve Bank
October 13: Evolve Bank & Trust and digital banking startup Mercury have ended their respective relationships with Synapse and are working directly with each other. Evolve and Synapse addressed the hubbub here.
October 6: Synapse has confirmed that it has licensed 86 people, or around 40% of the company. This was just four months after the company laid off 18% of its workforce as “current macroeconomic conditions” had begun to impact its customers and platforms, affecting its planned growth. In 2019, TechCrunch reported on the company’s activity. $33 million Series B raise led by Andreessen Horowitz after the rebranding of SynapseFi.
Note: This article was updated after publication to clarify that Synapse has not yet been converted to Chapter 7.
Want more fintech news in your inbox? Sign up for TechCrunch Fintech here.
Would you like to give us some advice? Send me an email to maryann@techcrunch.com or message me on Signal at 408.204.3036. You can also send a note to the entire TechCrunch team at tips@techcrunch.com. For more secure communications, click here to contact uswhich includes SecureDrop (instructions here) and links to encrypted messaging apps.