A group of senators has banded together to urge Synapse’s owners and banking and fintech partners to “immediately restore customers’ access to their funds.” As part of their demands, the senators accused both the company’s partners and investors of being responsible for the disappearance of customer funds.
In a letter publicly shared On Monday, U.S. Sen. Sherrod Brown (D-OH), chairman of the Senate Banking, Housing and Urban Affairs Committee, and Sens. Ron Wyden (D-OR), Tammy Baldwin (D-WI), and John Fetterman (D-PA) pointed out that customers of companies that partner with banking-as-a-service startup Synapse have been locked out of 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, as well as the company’s key banking and fintech partners. Recipients include former Synapse CEO Sankaet Pathak; venture capital 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 operated a service that allowed others (primarily fintechs) to integrate banking services into their offerings. For example, a software vendor specializing in payroll for 1099 contractor companies used Synapse to provide a direct-payment feature; others used it to offer specialized credit/debit cards. Until last year, it provided such services as an intermediary between banking partner Evolve Bank & Trust and corporate banking startup Mercury, when Evolve and Mercury decided to partner directly with each other, cutting out Synapse as a middleman.
Synapse has raised just over $50 million in venture capital in its history, including a $33 million Series B raise in 2019 led by Andreessen Horowitz’s Angela Strange. The startup stumbled through 2023 with layoffs and filed for bankruptcy in April of this year, hoping to sell its assets in a $9.7 million sellout to another fintech, TabaPay. But TabaPay walked away. It’s not entirely clear why. Synapse blamed Evolve and Mercury, both of which threw up their hands and told JS they weren’t responsible. Synapse CEO and co-founder Sankaet Pathak did not respond to our requests for comment.
As a result, Synapse was pressured into filing for Chapter 7 bankruptcy in May, completely liquidating the company. Customers have been locked out ever since.
Government officials were not about to let fintech partners off the hook, criticizing them for their role in the situation.
In their letter, the senators said it was the responsibility of all the various players – including the VCs who had backed them – “to ensure the safety and accessibility of end-user funds.”
They urged them to work together and immediately release all customer deposits currently frozen due to the Synapse bankruptcy.
Specifically, they wrote: “Each of you is responsible for the customers who have been locked out of their accounts. Consumer-focused fintech companies marketed their products to the public 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 were able to make a profit while Synapse positioned itself as a reliable financial infrastructure provider. But they failed to ensure that Synapse could meet its obligations. Banks joined forces with Synapse in an attempt to find new revenue streams. These partnerships also allowed Synapse to market services that were ultimately provided by the banks.”
The senators also expressed concern and alarm about “the potential $65 to $96 million shortfall between what consumers are owed and the funds held on their behalf by Synapse’s partner banks,” calling it “both deeply troubling and completely unacceptable.”
They added: “In due time we will find out who is ultimately responsible for this mess, but in the meantime the priority must be restoring consumers' access to the internet.” all of their money.”
In their letter, the senators also attacked the banking-as-a-service model as a whole, saying that Synapse's bankruptcy “has exposed the inherent weaknesses of this three-party business model and has left hardworking Americans and small businesses without access to their own money.”
The past week has been full of drama in the banking-as-a-service world. On June 26, Evolve Bank announced that it had been the victim of a cyberattack and data breach that could have affected its partner companies. The incident, according to the companyinvolved “the data and personal information of some Evolve retail banking customers and financial technology partners” such as Affirm, Mercury, Bilt, Alloy, and Stripe. On June 29, fintech company Wise announced that the personal information of some of its customers may have been compromised in the data breach. Also last week, Thread Bank — a popular partner of BaaS startups such as Unit – got affected by enforcement action of the FDIC. In particular, the order issued to Thread, as the publication Payments “is unique in that it explicitly mentions the bank's Banking-as-a-Service (BaaS) and Loan-as-a-Service (LaaS) programs.”
JS has reached out to both Evolve Bank and former Synapse CEO Sankaet Pathak for comment. Evolve declined to comment.
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