- The collapse of Synapse, a banking-as-a-service (BaaS) fintech, has sent shockwaves through the financial technology sector.
- Synapse’s collapse highlights the inherent risks and vulnerabilities within the fintech industry.
OUR TAKE
Synapse, the great ship of fintech, sinks. At the beginning, it was with the BaaS sail, attracting the attention of many investors, and even Andreessen Horowitz invested heavily in it. Turns out, the money’s gone, the boat’s capsised, and there’s chicken feathers. Synapse’s fall, like a boulder thrown into a lake, created ripples; The vulnerability and interdependence of the fintech industry is thus evident. In this era of change, only those companies that can move forward steadily, constantly innovate and remain vigilant can finally laugh at the end.
–Miurio huang, BTW reporter
What happened
The collapse of Synapse, a banking-as-a-service (BaaS) fintech, has sent shockwaves through the financial technology sector.
Synapse, based in San Francisco, provided a platform allowing other companies, predominantly fintechs, to embed banking services into their offerings. These services ranged from instant payment features for software providers catering to 1099 contractor-heavy businesses to specialised credit and debit card offerings.
Synapse raised over $50 million in venture capital during its existence, with a significant $33 million Series B round in 2019 led by Andreessen Horowitz’s Angela Strange. However, the company began to show signs of distress in 2023 with layoffs and eventually filed for Chapter 11 bankruptcy in April 2024. Synapse hoped to sell its assets for $9.7 million to another fintech, TabaPay, but TabaPay walked away from the deal, leaving Synapse with no choice but to liquidate under Chapter 7. This liquidation has had far-reaching consequences, affecting other fintechs like Juno, Yotta, and Yieldstreet, as well as their customers.
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Why it’s important
Synapse’s collapse highlights the inherent risks and vulnerabilities within the fintech industry.
As a key player in providing embedded banking services, its downfall affected approximately 100 fintech companies and millions of end users, disrupting access to significant funds.
The incident has raised critical questions about the sustainability and regulatory oversight of the BaaS model. With millions of dollars in customer deposits frozen, the trust in digital banking services has been severely undermined.
The broader implications are profound.
Senators have urged Synapse’s partners and investors to restore customer access to their funds, emphasising the accountability of fintech partnerships.
Meanwhile, Synapse’s CEO has already pivoted to a new venture, leaving unresolved questions about the missing $85 million in customer savings. The industry’s stakeholders are now reevaluating their dependence on third-party providers for essential banking services.
This debacle serves as a stark reminder of the importance of robust regulatory frameworks and the need for transparency in the fintech sector. As the fallout continues, with more companies and consumers being affected, the industry must address these challenges to rebuild trust and ensure stability in the future.
