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Synapse, backed by a16z, has collapsed, and 10 million consumers could be hurt

Published

6 months ago

May 27, 2024

Last year, the fintech startup world — star of the 2021 venture capital heydays — began to unravel as VC funding grew tight. As we step into mid-2024, large chunks of the sector today are a downright mess, especially the banking-as-a-service area which, ironically enough, experts last year told us was the bright spot.

The bankruptcy of banking-as-a-service (BaaS) fintech Synapse is, perhaps, the most dramatic thing going on now. Though certainly not the only bit of bad news, it shows just how treacherous things are for the often-interdependent fintech world when one key player hits trouble.

Synapse’s problems have hurt and taken down a whole bunch of other startups and affected consumers all over the country.

To recap: San Francisco-based Synapse operated a service that allowed others (mainly fintechs) to embed banking services into their offerings. For instance, a software provider that specialized in payroll for 1099 contractor-heavy businesses used Synapse to provide an instant payment feature; others used it to offer specialized credit/debit cards. Until last year, for example, it was providing those types of services as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury until Evolve and Mercury decided to work directly with each other and cut out Synapse as a middleman.

Synapse raised a total of just over $50 million in venture capital in its lifetime, including a 2019 $33 million Series B raise led by Andreessen Horowitz’s Angela Strange. The startup wobbled in 2023 with layoffs and filed for Chapter 11 in April of this year, hoping to sell its assets in a $9.7 million firesale to another fintech, TabaPay. But TabaPay walked. It’s not entirely clear why. Synapse threw a lot of blame at Evolve, as well as at Mercury, both of whom raised their hands and told TechCrunch they were not responsible. Once responsive, Synapse CEO and co-founder Sankaet Pathak is no longer responding to our requests for comment.

But the result is that Synapse is now close to being forced to liquidate entirely under Chapter 7 and a lot of other fintechs and their customers are paying the price of Synapse’s demise.

For instance, Synapse customer teen banking startup Copper had to abruptly discontinue its banking deposit accounts and debit cards on May 13 as a result of Synapse’s difficulties. This leaves an unknown number of consumers, mostly families, without access to the funds they had trustingly deposited into Copper’s accounts.

For its part, Copper says it’s still operational and has another product, its financial education app Earn, that is unaffected and doing well. Still, now it’s working to pivot its business toward a white-labeled family banking product partnering with other, as yet unnamed, larger American banks that it hopes to launch later this year.

Funds at crypto app Juno were also impacted by Synapse’s collapse, CNBC reported. A Maryland teacher named Chris Buckler said in a May 21 filing that he was blocked from accessing his funds held by Juno due to the problems related to the Synapse bankruptcy,

“I am increasingly desperate and don’t know where to turn,” Bucker wrote, as reported by CNBC. “I have nearly $38,000 tied up as a result of the halting of transaction processing. This money took years to save up.”

Meanwhile, Mainvest, a fintech lender to restaurant businesses, is actually shutting down as a result of the mess at Synapse. An unknown number of employees there are losing their jobs. On its website, the company said: “Unfortunately, after exploring all available alternatives, a mix of internal and external factors have led us to the difficult decision to cease Mainvest’s operations and dissolve the company.”

Based on Synapse’s filings, as many as 100 fintechs and 10 million end customers could have been impacted by the company’s collapse, industry observer and author of Fintech Business Weekly Jason Mikula estimated in a statement to TechCrunch.

“But that may understate the total damage,” he added, “as some of those customers do things like running payroll for small business.”

The long-term negative and serious impact of what happened at Synapse will be significant “on all of fintech, especially consumer-facing services,” Mikula told TechCrunch.

“While regulators don’t have direct jurisdiction over middleware providers, which includes firms like Unit, Synctera, and Treasury Prime, they can exert their power over their bank partners,” Mikula added. “I’d expect heightened attention to ongoing due diligence around the financial condition of these kinds of middleware vendors, none of which are profitable, and increased focus on business continuity and operational resilience for banks engaged in BaaS operating models.”

Perhaps not all BaaS companies should be lumped together. That’s what Peter Hazlehurst, founder and CEO of another BaaS startup Synctera, is quick to point out.

“There are mature companies with legitimate use cases being served by companies like ours and Unit, but the damage done by some of the fallouts you’re reporting on are just now rearing their ugly heads,” he told TechCrunch. “Unfortunately, the problems many folks are experiencing today were baked into the platforms several years ago and compounded over time while not being visible until the last minute when everything collapses at the same time.”

Hazlehurst says some classic Silicon Valley mistakes were made by early players: people with computer engineering knowledge wanted to ‘disrupt’ the old and stodgy banking system without fully understanding that system.

“When I left Uber and founded Synctera, it became very clear to me that the earliest players in the ‘BaaS’ space built their platforms as quick solves to tap into a ‘trend’ of neo/challenger banking without an actual understanding of how to run programs and the risks involved,” Hazlehurst said.

“Banking and finance of any sort is serious business. It requires both skill and wisdom to build and run. There are regulatory bodies protecting consumers from bad outcomes like this for a reason,” he adds.

And he says that in those heady early days, the banking partners – those that should have known better – didn’t act as the backstop when choosing fintech partners. “Working with these players seemed like a really exciting opportunity to ‘evolve’ their business, and they trusted blindly.”

To be fair, the BaaS players, and neobanks that rely on them, aren’t the only ones in trouble. We are continuously seeing news reports about how banks are being scrutinized for their relationships with BaaS providers and fintechs. For example, the FDIC was “concerned” that Choice Bank, “had opened…accounts in legally risky countries” on behalf of digital banking startup Mercury, according to a report by The Information. Officials also reportedly chastised Choice for letting overseas Mercury customers “open thousands of accounts using questionable methods to prove they had a presence in the U.S.”

Kruze Consulting’s Healy Jones believes that the Synapse situation will be “a non-issue” for the startup community moving forward. But he thinks that regulatory clarity for consumer protection is needed.

The FDIC needs to “come out with some clear language about what is and is not covered with FDIC insurance in a neobank that uses a third party bank on the backend,” he said. “That will help keep the neo-banking sector calm.”

As Gartner analyst Agustin Rubini told TechCrunch, “The case of Synapse underscores the need for fintech companies to maintain high operational and compliance standards. As middleware providers, they must ensure accurate financial record-keeping and transparent operations.”

From my point of view, as someone who has covered fintech’s ups and down for years, I don’t think all BaaS players are doomed. But I do think this situation, combined with all the increased scrutiny, could make banks (traditional and fintech alike) more hesitant to work with a BaaS player, opting instead to establish direct relationships with banks as Copper hopes to do.

Banking is highly regulated and highly complicated and when Silicon Valley players get it wrong, the ones who get hurt are everyday human beings.

The rush to deploy capital in 2020 and 2021 led to a lot of fintechs moving quickly in part as an effort to satisfy hungry investors, seeking growth at all costs. Unfortunately, fintech is an area where companies can’t move so quickly that they take shortcuts, especially ones that shirk compliance. The end result, as we can see in the case of Synapse, can be disastrous.

With funding already down in the fintech sector, it’s very likely that the Synapse debacle will impact future prospects for fintech fundraising, especially for banking-as-a-service companies. Fears that another meltdown will happen are real, and let’s face it, valid.

The post Synapse, backed by a16z, has collapsed, and 10 million consumers could be hurt appeared first on HIPTHER Alerts.

Latest News

COCA Celebrates Q2 2024 with Record-Breaking Milestones and New Launches

Published

4 months ago

August 7, 2024

CISION (PR Newswire)

HONG KONG, Aug. 7, 2024 /PRNewswire/ — COCA, a pioneering force in the crypto wallet and financial services industry, has achieved several remarkable milestones in Q2 2024. Thanks to the steadfast support of its user community, COCA has launched new features, expanded its partnerships, and garnered prestigious accolades, further solidifying its position as a leader in the crypto space.

Launch of Physical Cards

COCA has introduced its highly anticipated physical cards, which are now available globally and compatible with Apple Pay and Google Pay. These cards allow users to make transactions with ease, earning cashback rewards on their purchases. This significant launch marks a step forward in integrating crypto with everyday financial activities, enhancing user convenience and financial flexibility.

Wallet Growth Milestone

The company has reached a significant milestone with 510,000 active wallets, reflecting a 102% growth quarter-on-quarter. This surge in active wallets highlights the increasing trust and adoption of COCA’s platform, as more users join the COCA community to manage their crypto assets securely and efficiently.

Transaction Volume Surge

In Q2 2024, COCA processed over USD 450,000 in transactions through its platform, demonstrating the robust usage and popularity of its financial services. This impressive transaction volume underscores COCA’s commitment to providing smooth and efficient crypto payment solutions.

Integration with Revolut

COCA has made it easier for users to fund their wallets by integrating with Revolut. This new feature allows seamless loading of crypto assets, enhancing the overall user experience and accessibility of COCA’s services.

Award Recognition

COCA has been honoured with the “Best Startup” award in the Financial Revolution category at CONF3RENCE & BLOCKCHANCE 2024. This award is a testament to COCA’s innovative approach and significant impact on the future of finance, recognizing its efforts in driving forward the digital financial ecosystem.

New Strategic Partnerships

COCA has formed strategic partnerships with industry leaders such as Wirex Pay and GoMining. These collaborations aim to provide users with enhanced rewards and a superior overall experience. The partnerships signify COCA’s dedication to expanding its ecosystem and delivering greater value to its users.

Welcoming Pavel Matveev

COCA is excited to announce the addition of Pavel Matveev, Founder of Wirex, to its team as a Strategy and Product Advisor. Pavel’s extensive experience and visionary approach are expected to drive COCA’s strategic initiatives and product development, contributing to the company’s continued growth and innovation.

Season 2 Point System Launch

Season 2 of COCA’s popular point system has launched, offering users the opportunity to earn points through various activities, including trades, referrals, holding assets, and spending with COCA cards. With a prize pool of USDT 3500 and 5 Wirex Pay Nodes, this season promises exciting rewards and increased user engagement. The season ends on August 9th, so users are encouraged to participate actively.

NFT Giveaway

In a special giveaway, COCA distributed 1000 GoMining NFTs to lucky users. These NFTs provide unique benefits, including enhanced mining capabilities and exclusive digital collectibles, adding significant value to the user experience.

For further details on COCA’s Q2 achievements and upcoming initiatives, visit the company’s blog.

Website: coca.xyz

COCA continues to redefine the crypto experience with its innovative solutions, seamless integrations, and user-focused approach. The company’s recent milestones and future plans highlight its commitment to leading the way in the digital financial landscape.

About COCA

COCA is a next-generation crypto super app designed to simplify and secure the crypto experience for users worldwide. With innovations in security, usability, and integration, COCA is at the forefront of the digital asset revolution. For more information, visit coca.xyz.

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View original content:https://www.prnewswire.co.uk/news-releases/coca-celebrates-q2-2024-with-record-breaking-milestones-and-new-launches-302216619.html

Latest News

Stake and Earn with KuCoin’s Innovative GemPool Platform

Published

4 months ago

August 7, 2024

CISION (PR Newswire)

VICTORIA, Seychelles, Aug. 7, 2024 /PRNewswire/ — KuCoin, a leading global cryptocurrency exchange, is excited to announce the launch of GemPool, its innovative new platform that allows users to acquire token airdrops as a reward for staking their crypto assets. This unique product is designed to provide early access to emerging crypto projects while offering rewards for their existing holdings at zero cost. By staking respective tokens in separate pools, users can farm new tokens and gain a foothold in the latest developments within the cryptocurrency market.

GemPool also offers flexible staking terms, allowing users to stake and un-stake their assets anytime within the designated period without lock-up restrictions. This flexibility ensures that users can manage their assets according to their preferences and market conditions. Additionally, GemPool provides zero-cost rewards, enabling users to earn tokens while holding their existing cryptocurrencies. By staking their tokens, users contribute to the growth of promising new projects, supporting innovation and development within the crypto space. With completion of tasks offered, users are eligible to earn multiplier bonus and receive more rewards.

Users can participate by staking KCS, USDT, or other specified assets in designated pools. The rewards are earned according to the respective yields of the pools, ensuring a fair and exciting experience for all users.

For more information on how to participate and the benefits of GemPool, please visit the KuCoin GemPool page.

About KuCoin

Launched in September 2017, KuCoin is a leading cryptocurrency exchange with its operational headquarters in Seychelles. As a user-oriented platform with a focus on inclusiveness and community engagement. It offers over 900 digital assets across Spot trading, Margin trading, P2P Fiat trading, Futures trading, and Staking to its 34 million users in more than 200 countries and regions. KuCoin ranks as one of the top 6 crypto exchanges. KuCoin was acclaimed as “One of the Best Crypto Apps & Exchanges of June 2024” by Forbes Advisor and has been included as one of the top 50 companies in the “2024 Hurun Global Unicorn List”. Learn more at https://www.kucoin.com/.

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View original content:https://www.prnewswire.co.uk/news-releases/stake-and-earn-with-kucoins-innovative-gempool-platform-302216471.html

Latest News

Trust Wallet Launches Gamified Education Platform and Loyalty Program to Enhance and Reward Web3 Learning

Published

4 months ago

August 7, 2024

CISION (PR Newswire)

DUBAI, UAE, Aug. 7, 2024 /PRNewswire/ — Trust Wallet, the world’s leading self-custody Web3 wallet and Web3 gateway trusted by over 130 million users, has launched Trust Wallet Quests, a gamified education platform within the Trust Wallet mobile app which encourages users to earn points while exploring and learning about Web3.

Users can engage in task-based challenges ranging from quizzes to complex problem-solving scenarios composed of various DeFi and Web3 activities, all designed to deepen their understanding of blockchain technology and decentralized applications (dApps), and expose them to exciting opportunities within Web3. As an incentive, users will earn Trust Points, a loyalty-based points system designed to reward user activity within the Trust Wallet mobile app. With Trust Points, users can earn rewards upon the completion of specific tasks, making Web3 more rewarding and fun.

In the future, Trust Points will offer additional gamification features, such as unlocking achievements, badges, and levels. This interactive approach not only boosts individual learning but also contributes to broader community education and adoption of decentralized technologies, making Trust Wallet Quests a dynamic and exciting way to reward loyal users and engage with communities in Web3.

On the motive for launching Trust Wallet Quests, Eowyn Chen, CEO of Trust Wallet, stated: “The complex technology and fast-paced industry can be intimidating for both new and seasoned users. The introduction of Quests on Trust Wallet further solidifies our commitment to making it easier for millions to navigate Web3, aligning perfectly with our mission to build a seamless Web3 hub and open ecosystem for all.”

Nate Zou, Head of Product at Trust Wallet, highlighted what to expect from Trust Points and Trust Wallet Quests: “Trust Points and Quests are just the first iteration of a much-needed reward system for our community. Within 2024, we have plans to build on this, combining rewards with many of our other web3 product offerings. Overall, we envision this points system not only changing how users engage with Trust Wallet, but also encouraging more collaboration between Trust Wallet, our users and other web3 ecosystem players.”

Trust Wallet Quests and Trust Points are now available on both Android and iOS versions of Trust Wallet’s mobile app. Download here: https://short.trustwallet.com/TrustWalletQuests

About Trust Wallet

Trust Wallet is the self-custody, multi-chain Web3 wallet and Web3 gateway for people who want to fully own, control, and leverage the power of their digital assets. From beginners to experienced users, Trust Wallet makes it easier, safer, and convenient for millions of people around the world to experience Web3, access dApps securely, store and manage their crypto and NFTs, buy, sell, and stake crypto to earn rewards, all in one place and without limits.