Customers Left Stranded Following Synapse Fintech Collapse

Former Texas schoolteacher Kayla Morris, along with thousands of other customers, has been locked out of her savings deposit following the collapse of fintech firm Synapse. Morris had placed $282,153.87 in an account managed by Synapse, which is held at Evolve Bank & Trust, only to learn she would be returned a mere $500. «It’s just devastating,» Morris expressed during a recent court hearing.

The crisis began in May 2023 when a dispute over customer balances between Synapse and Evolve Bank escalated, leading to Synapse shutting down access to the systems used to process transactions. Synapse, serving as a middleman, facilitated fintech startups like Yotta’s ability to offer banking services through institutions including Evolve.

After Synapse filed for bankruptcy following client departures, a court-appointed trustee revealed that up to $96 million in customer funds were unaccounted for. Six months of court-facilitated efforts have yet to uncover the whereabouts of the missing funds. The financial shortfall has left many middle-class Americans, who believed they were secure in FDIC-backed accounts, unsure of the future of their savings.

Zach Jacobs, who lost over $94,000 entrusted to Yotta and Synapse, has formed a group named Fight For Our Funds, advocating for the victims. Jacobs, who logged into Evolve’s site only to find a dismal return, described the experience as «a reverse bank robbery.» His group has garnered the support of 3,454 individuals, collectively claiming losses exceeding $30 million.

Yotta, in particular, has seen substantial customer frustration, with 13,725 account holders receiving only $11.8 million out of the $64.9 million deposited. Despite the advertised FDIC insurance, customers face the stark reality of potentially unrecoverable funds.

The Federal Deposit Insurance Corporation (FDIC) clarified in June that its insurance does not extend to the failure of third-party firms like Synapse. New measures are being introduced to improve records, but as yet, no governmental entity has intervened to remedy the losses incurred by Synapse’s failure.

Jelena McWilliams, the bankruptcy trustee and former FDIC chair, expressed frustration at the regulatory inaction and lack of external assistance. Court hearings have seen banks pointing fingers, with American Banker reporting an $85 million discrepancy between what is supposed to be held and what actually is.

The complexity and novelty of the case leave affected depositors in a precarious position, with no straightforward path to restitution. As legal proceedings continue, the victims remain hopeful for a resolution, albeit uncertain if relief is forthcoming.