Earlier this year, fintech middleman Synapse filed for bankruptcy amidst an array of disagreements with Evolve Bank & Trust on the accuracy of ledger of transactions. Tennesse-based Evolve Bank & Trust managed 85 million bank accounts for the fintech intermediary.
Upon filing for bankruptcy, all accounts managed by Synapse were frozen on May 11th 2024, leaving thousands of Yotta customers locked out of their digital bank accounts. The locked accounts on Yotta’s platform amounted to $112 million that were inaccessible to users, forcing thousands into financial chokeholds. Yotta’s CEO and co-founder, Adam Moelis, bitterly expressed to CNBC that “we never imagined a scenario like this could play out and that no regulator would step in and help.”
Synapse served as the middleware service provider for fintech apps like Yotta that posed as neobanks, offering customers a gamified banking model. Synapse represents a banking-as-a-service (BaaS) model, popularly marketed to make banking accessible to everyone in a matter of minutes. The collaboration of Evolve Bank, Synapse, and Yotta, among several fintech apps on the market, forms an alternative financial ecosystem that offers renewed banking solutions in the internet age.
In a recent decision from Evolve Bank, a source revealed that the bank agreed to issue a partial payment of $46 million to its customers. In addition to this step towards relieving frozen funds, Evolve Bank hired a former Synapse engineer last month to unlock data from the fintech middleman. This development comes as a result of pressure from the Federal Reserve and the Federal Deposit Insurance Corp. Federal Reserve Chair Jerome Powell informed the Senate Banking Committee on Tuesday that “we’re strongly encouraging Evolve to do whatever it can to help make money available to those depositors.”
Synapse, founded in 2014 by Sankaet Pathak, stands at odds with Evolve, as both parties are unable to decipher the distribution of funds held by Evolve and other banks that partnered with Synapse. Bankruptcy trustee Jelena McWilliams confirmed that upwards of $96 million owed to Yotta users remains missing.
The Synapse case illustrates the vague and scarce regulations that fail to govern the BaaS model across the globe.
