9 ms·

(FinTech) Synapse has collapsed, 10M consumers, 100s of fintechs in trouble

47 points by achow 2y ago

throwaway211 2y ago
That a16z cannot coach, nurture and support one of their startups that has customers, and who has direct access to customers' own bank accounts, seems troubling.
- alephnerd 2y ago
  Series B is a different from the nurturing and mentorship standpoint. At that point a company (which is what a startup is) is expected to be able to run, but needs some additional capital to expand and execute on the strategy they were testing in Angel, Seed, and Series A.
bruce511 2y ago
I confess I'm very jaded when it comes to startup offerings. Basically im thinking "you'll be gone in 5 years, where does that leave me?" If that answer is bad, then I'm not really interested. I'm happy to use a product I need now for now, but I want 2 or 3 providers for any external service that is critical. Of course track record matters. AWS has shown they'll be around. Google will be around, but their habit of killing things means I avoid them. Azure is here to stay. But your new, cheaper, faster, better hosting solution? I'm not gonna commit anytime soon. Ideally you don't want to be dependent on 1 supplier. The risk is they Sherlock you, or block you (voluntarily or not.) History is knee-deep in the corpses of businesses that made this mistake.
- fragmede 2y ago
  In the abstract, that's an easy platitude to throw around. And hindsight is easy. The problem is there are real opportunity costs on not being dependent on 1 supplier/vendor/integration/aws-region/etc, and you can't know, in advance, which one's Synapse, and which one is AWS, and you're always going to be vulnerable to black swan events. There's little history written about shots not fired.
  - physicsguy 2y ago
    It depends enormously on the type of business... a startup that might not be around in 5 years can take a punt on embedding a product like this into their main offering, but a big company that has a public reputation to manage probably can't.
  - spywaregorilla 2y ago
    > you can't know, in advance, which one's Synapse, and which one is AWS, AWS is the one with ~$100,000,000,000 per year in revenue
smarm52 2y ago
> “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.” This is exactly why banking regulations (e.g., FDIC) were invented. Private organization could not be depended on for "heightened attention" or to do "due diligence". It's little wonder that these new private organization would behave similarly. It's amazing that this person can say that with a straight face. https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#Panics_of_1893_and_1907_and_the_Great_Depression:_1893%E2%80%931933 https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
- roenxi 2y ago
  > This is exactly why banking regulations (e.g., FDIC) were invented. But the FDIC suppresses the natural heightened attention and due diligence tendencies of the free market. There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking. The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either. If anything the FDIC should be cast as a serious moral problem, people with money are being allowed to take no-care no-responsibility stances when their capital is being used harmfully. And I'm not sure where this argument comes from that capitalists wouldn't care about their money. One of the things that people most reliably care about is the safety of their money, to the point where it is hard to parody. The main issue that I see is they are acting while weighing up the (reasonably high) odds of bailouts happening.
  - gnulinux996 2y ago
    Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver? > There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking I have no insight to the institutions I give my money to; if they operate on American soil, I "understand" that they have been regulated and brought up to standard by the State. The fact that a consumer depositing their money in the bank has to do "due diligence" or needs to be blamed when the institution (company?) goes belly up is laughable.
helsinkiandrew 2y ago
This is appalling, customers have lost access to their funds, because the company didn't have the cash to run their services. No part of the banking system should operate outside the support of a banking regulator who would/should step in with a loan so that customers could move their assets out in an orderly fashion. https://www.forbes.com/sites/emilymason/2024/05/14/judge-says-up-to-20-million-fintech-depositors-are-at-risk-from-synapse-bankruptcy/?sh=22d398665ca4 https://www.forbes.com/sites/emilymason/2024/05/14/judge-say... https://archive.ph/RhAzM https://archive.ph/RhAzM > At an emergency hearing Tuesday, U.S. Bankruptcy Court Judge Martin R. Barash, of the Central District of California, framed the situation starkly. “What we're really looking at with the meltdown of this company (Synapse), and it is melting down – there was a purchase that didn't go through, it's almost out of cash – is a situation where tens of millions of people do not have access to potentially hundreds of millions of dollars of their deposits,” he said. Barash suggested it was time for the federal bank regulators to get involved.
- alephnerd 2y ago
  > No part of the banking system should operate outside the support of a banking regulator The main reason fintechs were so nimble was because they would sidestep federal regulators by being state-chartered banks. I am in agreement with you that stare regulators need to also be stricter. We'll probably see state regulators increasingly adopt Basel II and force stricter compliance on state entities this coming decade. Another loophole they often would try is partner with a couple local banks to use as their underlying foundation, and build most of their functionality on top of that. This is what Synapse did [0], and why their underlying banking infra is backed by Evolve Bank & Trust in Tennessee, who provide their underlying banking infra to plenty of other A16Z funded fintechs. They are a member of the Federal Reserve so I wouldn't be worried about your deposits per say. The issue seems to be Synapse's lack of operating capital which means all the "middleware" will functionally stop working. [0] - https://synapsefi.com/legal https://synapsefi.com/legal
  - helsinkiandrew 2y ago
    > The issue seems to be Synapse's lack of operating capital which means all the "middleware" will functionally stop working. The only example I can think of how a regulator can stop this is the Lehman bankruptcy. When Lehman went under the U.K. branch was left with zero dollars - nothing to pay staff, rent, or power. The Bank of England sent a £1M within hours to keep the lights on, so the administrators could be appointed and start winding down the assets.
namaria 2y ago
Are we even hearing ourselves? Banking-as-a-service? When has banking not been a service? Software was sold as a product, with shrinkwrapped boxes. Selling it 'as-a-service' was a shift in paradigm. Appending this to businesses that have always been services just makes tech people sound out of touch. Not that this massive failure to 'disrupt' banking helps.
- moltar 2y ago
  I’m not sure which country you are from. But not in every country you get a “service” from a bank. I know in Canada banks are terrible (oligopolies) and the UIs are from the early 2000s with insanely bad security practices, like 4 digit passwords and SMS-only 2FAs. I’d gladly use and even pay for good UX in Canada.
  - namaria 2y ago
    The quality of a service provided is immaterial to the classification of an industry as 'service'.
  - rchaud 2y ago
    what's "good UX" for banking in your opinion? I don't find it difficult to track my transactions, pay bills or make transfers with my banking app.
- distances 2y ago
  > When has banking not been a service? If I understood right, the product here was selling banking services to other companies to build their own products on top of that. That's not a "banking service" in the typical sense, and I think the naming is correct.
  - namaria 2y ago
    > selling banking services > not a "banking service" You seem to have contradicted yourself. Banking is a service in every instance of the word "banking" here. Appending "as a service" doesn't add meaningful information, it just make technology people sound outta touch with the reality of other business domains.
joshstrange 2y ago
Let me start by saying that I understand the pain losing access to your money can cause and I feel for the customers in this situation. That said, their money was FDIC insured correct? From everything I’ve read about this it’s more of an issue of temporarily (unknown time) losing access. Which again, is still a huge deal but very different from losing your money forever. Even with the SVB collapse people got access again within a week or so IIRC. All of that to say, this is why I love tools like YNAB. I’ve been through two banks closing on me (Simple and HMBradley) one before using YNAB and one after. With YNAB I treat banks as interchangeable commodities where I can pick and choose which I use based on the best deal I can get. Where my money lives is of little consequence to me as long as it’s in a FDIC account and my main bill pay account is solid. That lets me pick something like Chase to be my main bank (brick and mortar, safer bet, obviously nothing is perfectly safe) while also making use of “fintech” banks like OneFinance (I liked them better before Walmart bought them) that offer higher interest rates on saving accounts (5%). I still wouldn’t want any of my accounts to be at a bank that goes under but with YNAB I can see my whole financial situation at a glance (and I have the history even if one of my banks go under) and I care a lot less about where my money is (bank) vs how I’ve budgeted it and planned for the future. When HMBradley shut down it was almost too easy to check the handful of services that were being paid from that account (using YNAB) and shift them elsewhere as well as transferring out the money held there. Even if HMB had imploded and I had lost access for days or weeks I could have managed without much issue because YNAB is the “One True Source” of my finances. I know this is a bit off-topic but I encourage you to check out a service like YNAB (doesn’t have to be YNAB, there are many alternatives, I just like YNAB) because it gives you a freedom in managing your finances/money that previously required hoping your bank had decent tools (like Simple’s) and then putting all your money in one place. I had to rework and rethink a lot when Simple closed down but now YNAB is where all my data is and I don’t care what tools the banks I use offer, they are just a place to store money and so I can hunt for the best deals and ignore the features. https://www.ynab.com https://www.ynab.com Also this video was instrumental in helping me understand YNAB: https://m.youtube.com/watch?v=exS0gU-Ie8E https://m.youtube.com/watch?v=exS0gU-Ie8E (I watched the original, this is the updated one from a few years ago)
- Kon-Peki 2y ago
kcsavvy 2y ago
I built and sold a yc-backed startup that used a BaaS vendor years ago. Even then, the inside scoop was that Synapse is poorly built and operated. Among the fintechs in YC Synapse has been known as a no-go for a while. There were a lot of flags - compelling media hit pieces, churning customers, departing execs, etc.
beefnugs 2y ago
What is "teen" banking? And how does it affect families? I would think its less vape sales

47 points by achow 2y ago

That a16z cannot coach, nurture and support one of their startups that has customers, and who has direct access to customers' own bank accounts, seems troubling.

alephnerd 2y ago
Series B is a different from the nurturing and mentorship standpoint. At that point a company (which is what a startup is) is expected to be able to run, but needs some additional capital to expand and execute on the strategy they were testing in Angel, Seed, and Series A.

bruce511 2y ago

I confess I'm very jaded when it comes to startup offerings. Basically im thinking "you'll be gone in 5 years, where does that leave me?" If that answer is bad, then I'm not really interested. I'm happy to use a product I need now for now, but I want 2 or 3 providers for any external service that is critical. Of course track record matters. AWS has shown they'll be around. Google will be around, but their habit of killing things means I avoid them. Azure is here to stay. But your new, cheaper, faster, better hosting solution? I'm not gonna commit anytime soon. Ideally you don't want to be dependent on 1 supplier. The risk is they Sherlock you, or block you (voluntarily or not.) History is knee-deep in the corpses of businesses that made this mistake.

fragmede 2y ago
In the abstract, that's an easy platitude to throw around. And hindsight is easy. The problem is there are real opportunity costs on not being dependent on 1 supplier/vendor/integration/aws-region/etc, and you can't know, in advance, which one's Synapse, and which one is AWS, and you're always going to be vulnerable to black swan events. There's little history written about shots not fired.
- physicsguy 2y ago
  It depends enormously on the type of business... a startup that might not be around in 5 years can take a punt on embedding a product like this into their main offering, but a big company that has a public reputation to manage probably can't.
- spywaregorilla 2y ago
  > you can't know, in advance, which one's Synapse, and which one is AWS, AWS is the one with ~$100,000,000,000 per year in revenue

smarm52 2y ago

> “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.” This is exactly why banking regulations (e.g., FDIC) were invented. Private organization could not be depended on for "heightened attention" or to do "due diligence". It's little wonder that these new private organization would behave similarly. It's amazing that this person can say that with a straight face. https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#Panics_of_1893_and_1907_and_the_Great_Depression:_1893%E2%80%931933 https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...

roenxi 2y ago
> This is exactly why banking regulations (e.g., FDIC) were invented. But the FDIC suppresses the natural heightened attention and due diligence tendencies of the free market. There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking. The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either. If anything the FDIC should be cast as a serious moral problem, people with money are being allowed to take no-care no-responsibility stances when their capital is being used harmfully. And I'm not sure where this argument comes from that capitalists wouldn't care about their money. One of the things that people most reliably care about is the safety of their money, to the point where it is hard to parody. The main issue that I see is they are acting while weighing up the (reasonably high) odds of bailouts happening.
- gnulinux996 2y ago
  Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver? > There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking I have no insight to the institutions I give my money to; if they operate on American soil, I "understand" that they have been regulated and brought up to standard by the State. The fact that a consumer depositing their money in the bank has to do "due diligence" or needs to be blamed when the institution (company?) goes belly up is laughable.

helsinkiandrew 2y ago

This is appalling, customers have lost access to their funds, because the company didn't have the cash to run their services. No part of the banking system should operate outside the support of a banking regulator who would/should step in with a loan so that customers could move their assets out in an orderly fashion. https://www.forbes.com/sites/emilymason/2024/05/14/judge-says-up-to-20-million-fintech-depositors-are-at-risk-from-synapse-bankruptcy/?sh=22d398665ca4 https://www.forbes.com/sites/emilymason/2024/05/14/judge-say... https://archive.ph/RhAzM https://archive.ph/RhAzM > At an emergency hearing Tuesday, U.S. Bankruptcy Court Judge Martin R. Barash, of the Central District of California, framed the situation starkly. “What we're really looking at with the meltdown of this company (Synapse), and it is melting down – there was a purchase that didn't go through, it's almost out of cash – is a situation where tens of millions of people do not have access to potentially hundreds of millions of dollars of their deposits,” he said. Barash suggested it was time for the federal bank regulators to get involved.

alephnerd 2y ago
> No part of the banking system should operate outside the support of a banking regulator The main reason fintechs were so nimble was because they would sidestep federal regulators by being state-chartered banks. I am in agreement with you that stare regulators need to also be stricter. We'll probably see state regulators increasingly adopt Basel II and force stricter compliance on state entities this coming decade. Another loophole they often would try is partner with a couple local banks to use as their underlying foundation, and build most of their functionality on top of that. This is what Synapse did [0], and why their underlying banking infra is backed by Evolve Bank & Trust in Tennessee, who provide their underlying banking infra to plenty of other A16Z funded fintechs. They are a member of the Federal Reserve so I wouldn't be worried about your deposits per say. The issue seems to be Synapse's lack of operating capital which means all the "middleware" will functionally stop working. [0] - https://synapsefi.com/legal https://synapsefi.com/legal
- helsinkiandrew 2y ago
  > The issue seems to be Synapse's lack of operating capital which means all the "middleware" will functionally stop working. The only example I can think of how a regulator can stop this is the Lehman bankruptcy. When Lehman went under the U.K. branch was left with zero dollars - nothing to pay staff, rent, or power. The Bank of England sent a £1M within hours to keep the lights on, so the administrators could be appointed and start winding down the assets.

namaria 2y ago

Are we even hearing ourselves? Banking-as-a-service? When has banking not been a service? Software was sold as a product, with shrinkwrapped boxes. Selling it 'as-a-service' was a shift in paradigm. Appending this to businesses that have always been services just makes tech people sound out of touch. Not that this massive failure to 'disrupt' banking helps.

moltar 2y ago
I’m not sure which country you are from. But not in every country you get a “service” from a bank. I know in Canada banks are terrible (oligopolies) and the UIs are from the early 2000s with insanely bad security practices, like 4 digit passwords and SMS-only 2FAs. I’d gladly use and even pay for good UX in Canada.
- namaria 2y ago
  The quality of a service provided is immaterial to the classification of an industry as 'service'.
- rchaud 2y ago
  what's "good UX" for banking in your opinion? I don't find it difficult to track my transactions, pay bills or make transfers with my banking app.
distances 2y ago
> When has banking not been a service? If I understood right, the product here was selling banking services to other companies to build their own products on top of that. That's not a "banking service" in the typical sense, and I think the naming is correct.
- namaria 2y ago
  > selling banking services > not a "banking service" You seem to have contradicted yourself. Banking is a service in every instance of the word "banking" here. Appending "as a service" doesn't add meaningful information, it just make technology people sound outta touch with the reality of other business domains.

joshstrange 2y ago

Let me start by saying that I understand the pain losing access to your money can cause and I feel for the customers in this situation. That said, their money was FDIC insured correct? From everything I’ve read about this it’s more of an issue of temporarily (unknown time) losing access. Which again, is still a huge deal but very different from losing your money forever. Even with the SVB collapse people got access again within a week or so IIRC. All of that to say, this is why I love tools like YNAB. I’ve been through two banks closing on me (Simple and HMBradley) one before using YNAB and one after. With YNAB I treat banks as interchangeable commodities where I can pick and choose which I use based on the best deal I can get. Where my money lives is of little consequence to me as long as it’s in a FDIC account and my main bill pay account is solid. That lets me pick something like Chase to be my main bank (brick and mortar, safer bet, obviously nothing is perfectly safe) while also making use of “fintech” banks like OneFinance (I liked them better before Walmart bought them) that offer higher interest rates on saving accounts (5%). I still wouldn’t want any of my accounts to be at a bank that goes under but with YNAB I can see my whole financial situation at a glance (and I have the history even if one of my banks go under) and I care a lot less about where my money is (bank) vs how I’ve budgeted it and planned for the future. When HMBradley shut down it was almost too easy to check the handful of services that were being paid from that account (using YNAB) and shift them elsewhere as well as transferring out the money held there. Even if HMB had imploded and I had lost access for days or weeks I could have managed without much issue because YNAB is the “One True Source” of my finances. I know this is a bit off-topic but I encourage you to check out a service like YNAB (doesn’t have to be YNAB, there are many alternatives, I just like YNAB) because it gives you a freedom in managing your finances/money that previously required hoping your bank had decent tools (like Simple’s) and then putting all your money in one place. I had to rework and rethink a lot when Simple closed down but now YNAB is where all my data is and I don’t care what tools the banks I use offer, they are just a place to store money and so I can hunt for the best deals and ignore the features. https://www.ynab.com https://www.ynab.com Also this video was instrumental in helping me understand YNAB: https://m.youtube.com/watch?v=exS0gU-Ie8E https://m.youtube.com/watch?v=exS0gU-Ie8E (I watched the original, this is the updated one from a few years ago)

Kon-Peki 2y ago

kcsavvy 2y ago

I built and sold a yc-backed startup that used a BaaS vendor years ago. Even then, the inside scoop was that Synapse is poorly built and operated. Among the fintechs in YC Synapse has been known as a no-go for a while. There were a lot of flags - compelling media hit pieces, churning customers, departing execs, etc.

beefnugs 2y ago

What is "teen" banking? And how does it affect families? I would think its less vape sales