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A dispute between a fintech startup and its banking partners has ensnared potentially millions of Americans, leaving them without access to their money for nearly two weeks, according to recent court documents.
Since last year, Synapse, an Andreessen Horowitz-backed startup that serves as a middle man between customer-facing fintech brands and FDIC-backed banks, has had disagreements with several of its partners about how much in customer balances it owed.
The situation deteriorated in April after Synapse declared bankruptcy following the exodus of several key partners. On May 11, Synapse cut off access to a technology system that enabled lenders, including Evolve Bank & Trust, to process transactions and account information, according to the filings.
That has left users of several fintech services stranded with no access to their funds, according to testimonials filed this week in a California bankruptcy court.
One customer, a Maryland teacher named Chris Buckler, said in a May 21 filing that his funds at crypto app Juno were locked because of the Synapse bankruptcy.
“I am increasingly desperate and don’t know where to turn,” Buckler wrote. “I have nearly $38,000 tied up as a result of the halting of transaction processing. This money took years to save up.”
10 million ‘end users’
Until recently, Synapse, which calls itself the biggest “banking as a service” provider, helped a wide swath of the U.S. fintech universe provide services like checking accounts and debit cards. Former partners included Mercury, Dave and Juno, well-known fintech firms that catered to segments including startups, gig workers and crypto users.
Synapse had contracts with 20 banks and 100 fintechs, resulting in about 10 million end users, according to an April filing from founder and CEO Sankaet Pathak.
Pathak didn’t immediately return an email seeking comment. A spokesman for Evolve declined to comment, instead pointing to a statement on the bank’s website that read, in part:
“Synapse’s abrupt shutdown of essential systems without notice and failure to provide necessary records needlessly jeopardized end users by hindering our ability to verify transactions, confirm end user balances, and comply with applicable law,” the bank said.
It is unclear why Synapse switched the system off, and an explanation couldn’t be found in filings.
‘We are scared’
Another customer, Joseph Dominguez of Sacramento, California, told the bankruptcy court on May 20 that he had more than $20,000 held up in his Yotta fintech account.
“We are scared that money will be lost if Synapse can not provide ledgers and documents to Evolve or Yotta to prove we are the legitimate owners,” Dominguez wrote. “We don’t know where our direct deposit has gone, we don’t know where our pending withdrawals are currently held.”
The freeze-up of customer funds exposes the vulnerabilities in the banking as a service, or BAAS, partnership model and a possible blind spot for regulatory…
Read More: Customers say they can’t access funds
