The collapse of fintech intermediary Synapse has left thousands of Americans with frozen savings accounts for the past two months. Amidst this chaos, there is now potential relief on the horizon as banks involved in the mess have made significant progress in piecing together account information for stranded customers. According to a source familiar with the situation, Evolve Bank & Trust and Lineage Bank, in particular, have hired a former Synapse engineer to unlock data from the failed fintech middleman, which has led to promising developments. With regulators like the Federal Reserve and the Federal Deposit Insurance Corp. putting pressure on these banks to release funds, there is hope that customers may see their money again in a matter of weeks.
Despite the recent progress made by the banks, there are still significant challenges in the reconciliation process. Shoddy record-keeping and a lack of funds for a forensic analysis have made it difficult to determine who is owed what. This has been further complicated by the involvement of small banks in the “banking-as-a-service” sector, who failed to properly manage unregulated partners like Synapse. The collapse of Synapse has shed light on the shortcomings of these programs and has prompted bank regulators to reprimand the banks involved.
While there is optimism among key players involved in the negotiations, including Evolve founder and Chairman Scot Lenoir, there remains uncertainty about how to deal with a likely shortfall of funds. Up to $96 million owed to customers is currently missing, which could hinder repayment efforts. It is unclear how the four main banks involved, Evolve, Lineage, AMG National Trust, and American Bank, along with what remains of Synapse, will address this issue. The Synapse trustee has not responded to requests for comment, and representatives for AMG, American Bank, and Lineage have also remained silent on the matter.
One of the key challenges in the situation is the confusion surrounding customer funds. Evolve Bank filed a response to questioning from one of its regulators, FINRA, emphasizing that while it holds some payment processing funds, deposits from the app Yotta migrated to a network of banks in late October 2023. This has led to conflicting statements between Synapse and Evolve, with Yotta CEO Adam Moelis confirming in an email that funds had left Evolve as of October 27, 2023. The lack of clarity regarding who is in possession and control of customer funds further complicates the already convoluted situation.
While there may be a glimmer of hope for Americans with frozen fintech accounts, the road to recovery remains fraught with challenges. The collapse of Synapse has highlighted the risks associated with unregulated partners in the fintech industry, and it serves as a cautionary tale for both banks and customers alike. As regulators continue to press for the release of funds, it is crucial for all parties involved to work together to ensure a swift and equitable resolution for the affected customers.