Thousands of everyday investors who used banking apps to gamify personal finance have been left with mere pennies after a fintech company collapsed earlier this year.
The collapse and bankruptcy of fintech middleman Synapse in May has left more than 100,000 Americans locked out of a collective $90 million of their own money, prompting a class action lawsuit.
One of those customers was Kayla Morris, a former school teacher from Texas who was saving money to buy a largerhome for her growing family.
When she and her husband sold their home in 2023, they took their earnings — $282,153.87 — and deposited it into fintech app Yotta, where they believed their money would be safe.
After the Synapse collapse, Evolve Bank & Trust worked to return the money tied up in complicated ledger mishaps back to the customers, but Morris was left wanting.
“We were informed last Monday that Evolve was only going to pay us $500 out of that $280,000,” Morris said during a court hearing, according to CNBC. “It’s just devastating.”
Her situation was not a unique; Zach Jacobs, who had $94,468.92 deposited in Yotta said he was getting less than $130 back from his bank.
Morris, Jacobs and other customers affected by the downfall of Synapse likely had never heard of the company before May 11. They used apps like Yotta or Juno — banking apps that were not banks, but gamified personal investment platforms — which in turn relied on Synapse’s services.
In April, approximately $265 million of users money was tied up in the end of Synapse. Since then, some $90 million is still unaccounted for.
But that’s not the worst part; not only are the users locked out of their funds, but due to alleged improper ledger keeping on Synapse’s end, it’s unclear exactly how all of those funds should be distributed.
How did a fintech middleman end up in the center of this level of monetary chaos?
Synapse was founded in 2014 and was backed by venture capital firm Andreessen Horowitz. The company’s aim was to provide fintech companies — like Juno or Yotta — with a means of providing banking services despite not holding banking licenses.
Fintech platforms that don’t have banking licenses aren’t protected by the Federal Deposit Insurance Corporation. If a major US bank fails, customers who keep money with the bank aren’t left holding an empty bag — the FDIC will reimburse them up to $250,000 per depositor, per banking institution.
As a result, fintech companies typically need to partner with FDIC-insured banks to hold their customers’ money in special accounts that give the companies the ability to manage those funds. That also means fintech companies need a middleman to perform bookkeeping tasks and maintain their ledgers; which is where Synapse entered the picture.
