This fintech was launched weeks after the failure of Synapse. Its CEO is fearless.

Tony Avelar/Bloomberg

Disastrous bankruptcy of middleware provider Synapse Financial affects consumers who were unable to access the funds they had deposited at certain fintechs. This also has an impact banks specializing in fintech partnerships and were facing increased regulatory scrutiny even before the Synapse fiasco.

But new fintech companies continue to launch. Last month saw the rollout of Liquid Treasuries, a consumer fintech product that combines aspects of checking, savings and investment accounts and is aimed at affluent Americans.

The product is the latest brainchild of Bill Harris, the former CEO of Intuit and PayPal who has since become a serial entrepreneur. In a recent interview, Harris seemed undaunted by the rapidly changing landscape of fintechs that rely on banking partnerships.

“There is increased regulatory oversight. There should be increased regulatory oversight,” said Harris, founder and CEO of Evergreen Moneythe digital wealth advisor that began offering liquid Treasuries on June 25.

The Evergreen Money product launch is timed to take advantage of high interest rates in the United States. It allows consumers to invest their money in relatively high-yielding U.S. Treasury bonds while maintaining the easy access to their funds that checking accounts provide.

“People have a lot of money in checking accounts and they’re not making anything,” Harris said. “The problem is not that complicated.”

He added: “If you took all the checking accounts in the country and paid 5% on them, that would be $103 billion in additional revenue in people’s pockets. »

What’s more complicated than the problem Harris is trying to solve is the mechanism Evergreen Money and its partners designed to unlock additional income for consumers.

The Evergreen Money account comes with a debit card issued by Coastal Community Bank in Everett, Washington. Customers also have access to ATMs, the ability to make wire transfers and Automated Clearing House, or ACH, network payments, and the ability to set up direct deposits of their paychecks.

Indeed, Harris advises consumers to use liquid Treasury bonds as a replacement for their checking accounts – in order to earn a 5.31% return, at the end of June, on as much of their wealth as possible. “It’s as simple as a checking account,” he said. “It’s as accessible as a checking account.”

Here’s the complicated part: The majority of customer funds will not be held at Coastal in Federal Deposit Insurance Corp.-insured deposit accounts. Instead, the money will largely be invested in Treasury bonds housed in brokerage accounts insured by the Securities Investor Protection Corp.

These brokerage accounts are held with Jiko Securities, another key partner of Evergreen Money. Jiko, which has its own banking arm, has developed technology designed to make Treasury bonds bankable.

The idea is to automatically turn customer deposits into Treasuries and create an environment where the money can also be ejected back, Harris said. When a customer makes a debit card purchase, funds from a checking account are used to provide immediate access to the customer’s money, he said.

Consumers can purchase Treasuries directly from the U.S. government, but Harris said the process is quite complicated and liquid Treasuries make owning Treasuries simpler.

Some high-yield savings accounts offer returns similar to those available with the Liquid Treasuries product, but residents of some states can realize substantial tax savings by investing in Treasury bonds. Interest paid on Treasury bonds is exempt from state and local taxes, which is convenient in states like California, where the top tax rate is over 13%.

Evergreen Money Advisors is a registered investment advisor, and the startup makes money by charging fees based on the size of the client’s assets under management. The minimum investment amount is $10,000 and clients pay a monthly fee of 0.03%.

In light of Synapse’s failure, the operational aspects of bank-fintech partnerships are currently receiving more attention, and the Liquid Treasuries product is operationally complex, said Jonah Crane, a partner at the firm. Klaros Group consultancy.

As a middleware provider, Synapse stood between fintechs and banks, and its collapse left tens of millions of dollars in customer funds unaccounted for. The funds held by Synapse were not FDIC insured. Last month, regulators hit former Synapse partner Evolve Bank & Trust with a cease-and-desist order for issues that included gaps in consumer protection.

Crane, whose focus areas include banking as a service and embedded finance, predicted that following the Synapse bankruptcy, fintechs will have a harder time finding partner banks, as banks with better reputation will be in high demand.

“It’s not hard to imagine how we could end up in a real bind if everyone tries to partner with one of these banks,” he said. “Banks are becoming very demanding.”

Evergreen Money probably had a head start on many fintechs in this regard. As the founding CEO of financial app One, which was eventually acquired by WalmartHarris previously worked with Coastal Community Bank.

In an interview, Coastal CEO Eric Sprink praised Harris, whose previous companies include Personal Capital, a digital wealth management company. acquired by Empower Retirement in 2020and Nirvana Silver, a digital credit card for low-income consumers that Harris closed shortly after launching in 2022.

“He’s just a crazy genius,” Sprink said. “This is a really smart cookie.”

Sprink agrees with Harris that increased regulatory oversight of banking as a service is a positive development. “I think it’s healthy,” he said. “Ultimately, I think a shakeup like this will really improve things.”

Other observers, including Jason Henrichs, founder and CEO of Alloy Labs, have said that Synapse’s collapse does not appear to have made much of an impression on the general public, even against a backdrop of general public media coverage in recent weeks.

Greater public attention to Synapse’s situation could be detrimental to various consumer-facing fintechs, even those that operate responsibly and don’t run the risks that a middleware vendor can inject.

Henrichs is not an impartial observer of Bill Harris’ latest adventure. He said Harris was his longtime mentor and that Coastal Community Bank was a member of Alloy Labs, which operates a community bank alliance where member banks can collaborate.

Coastal is also one of the organizers of the Alloy Labs Center of Excellence, which works to set standards for the banking-as-a-service industry, according to Henrichs. “They said, ‘Either we mature the industry or bad things will happen,’” he said.

Now that bad things have happened — distressed consumers are filing testimonies in Synapse’s bankruptcy case — Henrichs thinks some consumers will think twice about doing business with fintechs. But so far, he says, the impact appears to have been minimal.

“What’s it going to take?” Henrichs wondered. “Is it: Jon Stewart needs to talk about this before people pay attention to it?”