Synapse collapses, 10 million users at risk

The financial technology (Fintech) startup market, which boomed in 2021, is now facing many difficulties, especially in providing banking services to third parties (Banking-as-a-Service, BaaS). .

The most notable event was the BaaS company Synapse declaring bankruptcy. This incident shows the fragility of the Fintech ecosystem when an important link has problems.

Synapse provides a service that allows other companies (mainly Fintechs) to integrate banking services into their products. For example, a company specializing in payroll for independent contractors used Synapse to provide instant payments.

Synapse was once considered a bright area of ​​Fintech, raising more than $50 million from venture capital funds. However, by 2023, the company encountered difficulties, had to cut staff and filed for chapter 11 bankruptcy in April this year.

Plans to sell the assets to another Fintech company for $9.7 million also failed. As a result, Synapse is at risk of having to completely dissolve under chapter 7, affecting many other startups and customers.

For example, children’s banking startup Copper had to stop issuing accounts and debit cards due to its reliance on Synapse. This left many customers, mainly families, unable to access their funds.

Additionally, cryptocurrency app Juno and lending company Mainvest were also affected. According to estimates, about 100 Fintech companies and 10 million customers could ultimately be impacted by Synapse’s collapse.

https://mainvest.notion.site/Investor-Support-Hub-45c61ca735dd4daf8203c28d8945f9ff#3d543d9dcdf94df2b5dd6cacca0e16e3

This case shows the need for regulatory compliance and transparent operations in the Fintech sector. Banks also need to be more careful when choosing BaaS partners.

In addition, regulators need to have clearer regulations on consumer protection in the field of digital banking.

The collapse of Synapse may make banks (traditional and Fintech) more cautious about partnering with BaaS providers.

Fintech is a field that requires strict compliance with regulations. When companies take risks in a hurry, the ultimate losers are the users.

Massive investments in 2020 and 2021 caused many Fintech companies to grow rapidly to satisfy investors, despite regulatory compliance. The lesson learned from Synapse’s event is that Fintech needs to develop sustainably and comply with regulations. This incident may affect the ability of Fintech companies to raise capital in the future.