As these companies work to distance themselves from the financial collapse, restoring their reputations has become a top priority. In this article, we’ll take a deep dive into what exactly happened, how Synapse’s partners are navigating the aftermath and the strategies they’re using to rebuild trust and recover from the damage to their brands. Additionally, we’ll look into what the banking industry has learnt from this fallout and what changes have been made.
Before its downfall, Synapse Financial Technologies served as a Banking-as-a-Service (BaaS) provider, supporting collaborations between fintech platforms and FDIC-insured banks. Federal Deposit Insurance Corporation (FDIC) provides deposit insurance, safeguarding individuals’ money in deposit accounts at FDIC-insured banks in case of bank failure. Headquartered in San Francisco, Synapse focused its operations on the US market, acting as a middleman between fintechs and financial institutions, facilitating account management and transaction processing for its clients. Through its collaborations, Synapse delivered its services to over 10 million retail customers and had relationships with nearly 100 businesses, including Yotta, Juno, Dave, and Relay, among others.
Synapse used to act as an intermediary between Evolve Bank & Trust, its banking partner, and Mercury, a business banking startup. This set-up ceased when Evolve and Mercury chose to collaborate directly, removing Synapse as the go-between. This quickly led to issues for Synapse, which, in October 2023, laid off 40% of its workforce, with the affected employees receiving an email notifying them that they would not get severance payments. Moreover, two of the company’s investors, CoreVC and a16z, planned to place them in positions at other portfolio firms.
Everything took a turn for the worse on 22 April 2024, when Synapse filed for Chapter 11 bankruptcy protection, halting services and negatively affecting numerous fintech partners and their customers. The company then tried to sell its assets in a USD 9.7 million arrangement with TabaPay. Still, in May 2024, the latter decided to walk away from the deal, citing Synapse’s failure to meet the closing conditions outlined in the purchase agreement. At that time, through a LinkedIn message to Banking Dive, Synapse’s CEO confirmed that the failure was due to Evolve not fully funding the required accounts. However, Evolve contested claims of involvement in TabaPay’s agreement with Synapse, mentioning that it was not part of the deal and that it did not have any closing conditions to meet.
In an exclusive interview for The Paypers, Sam Boboev, founder at Fintech Wrap Up and Product Manager at TPF, mentioned that the situation with Synapse was rather complex, with various parties providing explanations for why the deal with TabaPay did not go through. At that time, he stated that, considering the developments, the possibility of Synapse’s case being converted from Chapter 11 bankruptcy reorganisation to Chapter 7 liquidation was high, according to court documents.
During this period, the US fintech sector, especially BaaS, faced scaled regulatory scrutiny as Synapse experienced economic and regulatory difficulties, including those aforementioned layoffs and regulatory pressures on bank-fintech collaborations. Moreover, Synapse’s move raised concerns about the stability of fintech intermediaries and whether they could collapse at any moment and leave partners and users in a financial betwixt.
Synapse’s bankruptcy was a pivotal event in the fintech sector, uncovering weaknesses in the reliance on non-bank intermediaries. Synapse’s undoing was mostly due to financial mismanagement, with the company presenting inconsistencies in ledger records and not being able to reconcile customer accounts, leaving millions of dollars unaccounted for. More specifically, the company’s management of For Benefit Of (FBO) accounts presented several issues, with it not maintaining accurate records, which in turn led to discrepancies between bank-held funds and amounts owed to fintech users.
Moreover, Synapse failed to comply with regulatory requirements, not being able to reconcile accounts and keep the transparency of records. Customers bore the burden of this, with them facing frozen accounts and substantial financial losses. For example, some individuals lost life savings, with reports highlighting that, for nearly three weeks, approximately 85,000 customers of Yotta Savings, a fintech company leveraging Synapse’s solutions, with a joint USD 112 million in savings, were locked out of their accounts. This led users to borrow money for essentials, like food, and forgo important events such as surgeries or weddings, fundamentally disrupting their lives.
In April 2024, when Synapse filed for Chapter 11 bankruptcy, its four banking partners – which, in addition to Evolve Bank & Trust, included American Bank, Lineage Bank, and AMG National Trust – lost contact with Synapse’s financial records, leaving USD 265 million in customer deposits blocked.
Back in July 2024, Evolve Bank & Trust released a statement underlining that its priority was to collaborate with the Synapse Trustee and all relevant parties to support the prompt distribution of funds to the customers entitled to them. The bank also stated its commitment to maintaining compliance with applicable laws and regulations.
At that time, former FDIC Chairman, Jelena McWilliams, was appointed as Independent Trustee of Synapse, replacing the management team responsible for the irregular ledgers offered to the bank. According to Evolve, since their appointment, McWilliams regularly met with the bank and other Synapse ecosystem financial institutions to assist in the calculation and distribution of Synapse Brokerage end-user account balances. Additionally, Evolve aimed to actively participate in the process, stating its commitment to working collaboratively and transparently with the Trustee, other banks, and impacted fintech companies to determine the appropriate path moving forward.
More recently, specifically at the beginning of March 2025, Evolve Bank updated its users on its progress. In its open letter, the bank mentioned its plans to make additional disbursements to a subset of end-users, underlining its involvement with Ankura, an independent global expert services and advisory firm that delivers services and end-to-end solutions to help clients at critical inflexion points, to assist in ongoing data analysis and validation. Additionally, Evolve continued to blame Synapse, as well as the other ecosystem banks, including AMG, Lineage, and American Bank, stating that none of the financial institutions agreed to the data sharing required to complete the analysis and determine who holds end-user funds. AMG and Lineage released separate statements, emphasising that Evolve frames the issues regarding the Synapse bankruptcy misleadingly. AMG’s officials also mentioned that Evolve did not explain why it needed the information it requested or its intentions for using it.
Furthermore, in the latest turn of events, Mercury ended its relationship with Evolve Bank following a range of operational issues that unfolded publicly. Initially, the two teamed up in 2019 when Mercury was a startup. As a neobank, Mercury intended to provide software-improved banking services, including checking accounts and cards for businesses. Considering that it lacked a banking licence, the company needed a bank to operate behind the scenes, hold customer funds, and facilitate money movement. This relationship was supported by Synapse, which was later removed from the agreement as Mercury started working directly with Evolve Bank. Due to operational issues at Evolve, Mercury sought to finish the migration of its customers from Evolve to other partners, including the Column National Association or Choice Financial Group.
The downfall of Synapse underlined systemic risks within the US fintech landscape, highlighting the need for risk management and regulatory oversight over bank-fintech partnerships. Some measures were proposed, including by the Federal Deposit Insurance Corp, which focused on banks scaling recordkeeping requirements for accounts held by fintech companies on behalf of their customers. The regulator’s demands were intended to ensure that consumers got timely access to their funds, even without a bank’s failure.
Additionally, the debacle accentuated the need to ensure accurate record-keeping, transparent operations, and obvious delineation of responsibilities between fintech companies and banks. By implementing this, the banking sector could guarantee the protection of consumers, as well as trust in the financial system.
One question remains: how will Synapse’s former partners step up to further address the fintech’s fallout and rebuild what has been lost? Stay tuned for ongoing updates as the situation unfolds.
Iulia is a Junior News Editor at The Paypers, predominantly focusing on fraud prevention, financial inclusion, and online payments. With an interest in discovering the latest trends in financial security and payment solutions, Iulia is eager to bring insightful news that keeps readers updated with the current advancements in the financial landscape.
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