What Happens When Your Bank Isn't a Bank and Your Money Disappears?
The bankruptcy of Synapse Technology affects depositors of online financial start-ups like Juno, Yieldstreet, and Yotta, freezing nearly $300 million in deposits. Regulators are hesitant to intervene, leaving customers uncertain.
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The bankruptcy of Synapse Technology has left depositors of online financial start-ups like Juno, Yieldstreet, and Yotta in a precarious situation. These start-ups, although not banks themselves, offered accounts with promises of FDIC insurance and attractive interest rates. However, when Synapse filed for bankruptcy, customer accounts were frozen, totaling nearly $300 million in deposits. The complexity arises from these start-ups acting as intermediaries, passing customer funds to traditional banks like Evolve Bank & Trust. As a result, customers are struggling to access their funds, with accusations and blame shifting between the involved parties. While some funds have been released, a significant shortfall remains, leaving customers uncertain about the fate of their savings. Regulators like the FDIC and Federal Reserve have been reluctant to intervene, leaving depositors in a challenging position with limited options for recourse. The situation highlights the risks associated with online-only financial services and the importance of understanding where and how your money is being managed.
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14 commentsInstead we do no regulation, these "not-banks lying and claiming your money is safe" get to harm a lot of people, and the public further loses trust in everyone involved.
To anyone reading this who has money in any business that claims not to be a bank but instead your money is super-safely stored in a real bank somewhere and so there's no risk to you: run away, run away fast. Get your money out and close your account. You're in a Ponzi scheme and you don't realize it.
Like the ones discussed in the article, Mercury also keeps customer funds in Evolve, among other banks (I guess they claim to spread your money around so you don't have more thank 250K in any one basket). So if I understand correctly, the problem is that I have no visibility to the back end, so if Mercury keels over I'll have trouble getting my money?
* I used SVB for 25 years, but over the past few years their service declined and First Republic poached a lot of their good guys, so I switched to FRB. With a track record like that, perhaps Mercury should reject me?
> Synapse often used multiple Partner Banks to service different functions for the same Fintech Partner. In certain instances, end user deposits through a Fintech Partner were deposited in an account at one Partner Bank, while end user withdrawals through that same Fintech Partner were processed from a different account at a different Partner Bank. This business model makes it both essential and difficult to reconcile transactions and ensure end users receive access to the correct amount of funds due to each end user.
https://www.courtlistener.com/docket/68458190/synapse-financ...
This fintech product model, with multiple intermediaries and service providers between end users and the depository banks, is a house of cards. Is running your bank-like financial services product as an actual bank that hard? These technology companies seem to want all the upsides of being a bank, with none of the responsibilities.
From my perspective, the big gap is that these depository banks aren't maintaining the customer and transaction data for the beneficial owners of the money they have on deposit. They seem like they should be the ones ultimately responsible for safeguarding the customer's funds. In the middle of this, the Federal Reserve dropped this gem about KYC non-compliance for one of the banks involved, swearing that it has nothing to do with the Synapse bankruptcy.
https://www.federalreserve.gov/newsevents/pressreleases/enfo...
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Higher interest rates have caused 63 "problem banks" in the US, with $517 billion in unrealized losses. FDIC reassures this represents 1.4% of all banks, using the CAMELS rating system.
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