Hey fintech friends,

Synapse’s bankruptcy and subsequent wind-down has left many open questions about the path forward for its ~100 customers and tens of thousands of end users holding funds on the platform. It has also brought to light the complexities and risks involved in building Banking as a Service, and underscored the human cost of getting it wrong.  

In the fallout of this collapse it’s important to learn from the vulnerabilities that led to this point. It’s also important to acknowledge the unique challenges that Synapse grappled with– in its bank partnership structure, its struggles with regulatory compliance, and seeming inability to maintain an accurate ledger.

Let’s dive into what’s happened at Synapse, the specific factors that led to its collapse, and what takeaways experts including Simon Taylor, Trevor Tanifum, Alex Johnson, and Faraz Rana say the industry should carry forward.

tl;dr: Synapse’s rise and fall

Synapse was founded as a banking app for underbanked consumers in 2014, before quickly pivoting to offering B2B Banking-as-a-Service infrastructure. By its peak in 2022, Synapse had raised $50.7 million in funding from investors including a16z, supported over 18 million end users, and held $9 billion in assets across the platform, primarily deposited with Evolve Bank & Trust. However, internal turmoil began surfacing as Forbes reported employees and customers were fleeing the company, citing inadequate experience in building banking solutions, technical flaws in the product, and allegations of a “verbally ‘abusive’” CEO, Sankaet Pathak, who was also embroiled in a 2019 lawsuit over gender and age discrimination (Pathak could not be reached for comment). 

By late 2023, Fintech Business Weekly reported that Evolve terminated its relationship with Synapse, leaving Synapse scrambling to migrate customers and users to another bank. Synapse's largest client, Mercury, also announced it was migrating from Synapse to a direct integration with Evolve.

What led to Synapse’s collapse?