Synapse Collapse Leaves Nearly $160M Frozen, Shaking Fintech Sector

Banking-as-a-service firm Synapse's bankruptcy freezes $160M in user funds, exposing risks in the fintech industry.

The collapse of Synapse, a fintech startup providing banking-as-a-service (BaaS), has led to a significant financial freeze, affecting nearly $160 million in user deposits. San Francisco-based Synapse, which allowed fintechs to integrate banking services into their platforms, filed for Chapter 11 bankruptcy in April 2024 after its $9.7 million asset sale to TabaPay fell through. The firm has since been urged to liquidate under Chapter 7, intensifying the fallout for its numerous fintech partners and their customers.

The bankruptcy has left millions of consumers unable to access their funds, with ongoing efforts to reconcile and release approximately $158.6 million proving slow. This situation highlights the precarious nature of the BaaS model, as Synapse’s failure underscores how interconnected fintechs can suffer when a key service provider falters.

Synapse’s troubles began with significant layoffs and tensions with banking partner Evolve Bank & Trust. The situation worsened when a proposed asset sale was abandoned and efforts to resolve the financial mess stalled. This has had a cascading impact on fintechs like Juno, Yotta, and Yieldstreet, as well as startups such as Copper, which were forced to discontinue services due to the disruption.

As the fintech industry grapples with this crisis, questions about the stability and risks of digital banking models are increasingly being raised.