Relief in Sight for Stranded Fintech Customers
For thousands of Americans whose savings have been locked in frozen fintech accounts for the past two months, there may be relief on the horizon. Banks involved in the mess caused by the collapse of fintech intermediary Synapse have made progress piecing together account information for stranded customers, which could result in the release of funds in a matter of weeks.
The Problem
Beginning in May, more than 100,000 customers of fintech apps like Yotta, Juno, and Copper have been locked out of their accounts. The issue was caused by the collapse of Synapse, a fintech middleman that helped connect these apps with banks. The collapse left a trail of stranded customers, with up to $96 million owed to them.
The Solution
Staff of Evolve Bank & Trust and Lineage Bank have made headway in unlocking data from the failed fintech middleman, according to a person briefed on the matter. The banks have hired a former Synapse engineer to help with the process. The development comes as regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., pressure the banks involved to release funds.
The Progress
Evolve Bank initially planned to release $46 million it held from payment processing accounts to give fintech customers partial payments. However, the plan changed when it became clear that a full reconciliation of customer accounts was possible. The bank is now working to release funds to customers as soon as possible.
The Challenges
Despite the progress, there are still challenges to overcome. The Synapse trustee has said that up to $96 million owed to customers is missing, and it is unclear how the four main banks involved will deal with this shortfall. The banks and the Synapse trustee will need to work together to find a solution.
The Future
The sudden optimism of key players involved in the negotiations comes after weeks of apparent gridlock in a California bankruptcy court. The episode has revealed how small banks involved in the "banking-as-a-service" sector didn’t properly manage unregulated partners like Synapse. Evolve and a string of peers have been reprimanded by bank regulators for shortcomings tied to their programs.
Conclusion
The situation is complex, but it appears that there is hope for stranded fintech customers. The banks involved are working to release funds to customers as soon as possible, and regulators are putting pressure on them to do so. While there are still challenges to overcome, the progress made so far is a positive sign.
FAQs
Q: What happened to the funds owed to customers?
A: Up to $96 million owed to customers is missing, according to the Synapse trustee.
Q: How will the banks deal with the shortfall?
A: It is unclear how the four main banks involved will deal with the shortfall. The banks and the Synapse trustee will need to work together to find a solution.
Q: When can customers expect to receive their funds?
A: The banks are working to release funds to customers as soon as possible. The exact timeline is unclear, but it could be in a matter of weeks.
Q: What caused the collapse of Synapse?
A: The collapse of Synapse was caused by a combination of factors, including poor record-keeping and a lack of funds to pay for a forensic analysis.
Q: What is being done to prevent similar situations in the future?
A: The episode has revealed how small banks involved in the "banking-as-a-service" sector didn’t properly manage unregulated partners like Synapse. Evolve and a string of peers have been reprimanded by bank regulators for shortcomings tied to their programs.
Author: www.cnbc.com
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