A dispute between a fintech startup and its banking partners may have left millions of Americans in limbo, leaving them without access to their money for more than a week, according to recent court filings.
Since last year, synapse — Upvoted by Andreessen Horowitz start up The company, which acts as an intermediary between customer-facing fintech brands and FDIC-backed banks, has been at odds with several partners over the balances it owes customers.
The situation worsened in April when Synapse declared bankruptcy following the departure of several key partners. On May 11, Synapse cut off access to technology systems that support lenders, including Development Banks and TrustsProcess transactions and account information according to court documents.
That left users of several fintech services stranded and unable to access funds, according to testimony filed this week in California’s bankruptcy court.
A client named Chris Buckler, a Maryland teacher, said in a May 21 filing that his funds on cryptocurrency apps Juno Locked due to Synapse bankruptcy.
“I was getting more and more desperate and didn’t know where to turn,” Barker wrote. “I had almost $38,000 on hold because transaction processing stopped. It took several years to save that money.”
Until recently, Synapse, which billed itself as the largest “banking as a service” provider, also helped provide services such as checking accounts and debit cards to a wide swath of the U.S. fintech sector. including former partners HG, dave and Juno are prominent fintech companies serving market segments such as startups, gig workers, and cryptocurrency users.
Synapse has contracts with 20 banks and 100 fintech companies and has about 10 million end users, according to documents filed by its founder and CEO in April. Sankt Pathak.
Pathak did not immediately respond to an email seeking comment. A spokesperson for Evolve declined to comment, instead stating statement On the bank’s website, part of the text reads:
“Synapse unnecessarily endangered end users by abruptly shutting down critical systems without notice and failing to provide necessary records, impeding our ability to verify transactions, confirm end-user balances and comply with applicable laws,” the bank said.
It’s unclear why Synapse shut down the system, and no explanation could be found in the documentation.
Another customer, Joseph Dominguez from Sacramento, California, wrote on May 20 that he had more than $20,000 stuck in his account. Jota FinTech Account.
“We are concerned that if Synapse is unable to provide Evolve or Yotta with the ledgers and documentation to prove we are the rightful owners, we will lose money,” Dominquez wrote. “We have no idea where our direct deposits went, and we No idea where our pending withdrawals are currently held.”
The freezing of customer funds exposes vulnerabilities in Banking as a Service (BAAS), partnership models and possible regulatory blind spots.
The BAAS model, best known by pre-IPO fintech Chime, allowed Silicon Valley-style startups to tap into the capabilities of smaller FDIC-backed banks. Together, the ecosystem helps these companies compete with U.S. banking giants.
Customers mistakenly believe that because the funds are ultimately held in a real bank, they are as safe and available as any other FDIC insured account. Jason MikulaA consultant and newsletter writer followed the case closely.
“More than 10 million people can’t pay their mortgages, can’t buy groceries… it’s another disaster,” Mikula said.
Mikula added that regulators have not yet played a role in the dispute, in part because the banks involved have not yet failed, and the FDIC typically intervenes in a failure to protect customers.
The FDIC and Federal Reserve did not immediately return calls seeking comment.
When making a request to the judge in this case, Martin BarashIn an effort to help affected customers, Buckler noted in his testimony that while he had resources beyond the locked accounts, others were not so lucky.
“So far, the federal government has been unwilling to help us,” Buckle wrote. “As you can hear, there are millions of people affected and their situation is much worse.”
In a phone interview Wednesday, Buckle said he had a message for Americans:
“I want people to realize: yes, your money may be safe in the bank, but if the fintech or processor fails, it’s not safe,” he said. “What if this is another FTX, what if they use my money to do interesting business?”
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