Synapse, a San Francisco-based fintech startup, has filed for bankruptcy. The sudden filing for protection under Chapter 11 has frozen around $160 million in user funds, causing shockwaves in the fintech industry. Many businesses that relied on Synapse for their banking services are scrambling to reassess their financial strategies, with uncertainty about the recovery of their frozen funds.
Synapse was a major player in the fintech industry as a Banking-as-a-Service provider, enabling businesses to integrate banking services into their products. It raised $50 million in venture capital, including a substantial investment in 2019 from Angela Strange of Andreessen Horowitz. With its wide range of services, Synapse found applications across a variety of sectors.
Plans to sell its assets to another fintech startup, TabaPay, for an estimated $9.7 million fell through, pushing Synapse into Chapter 7 liquidation.
Synapse bankruptcy sends shockwaves in fintech
This has had a domino effect on other fintech enterprises, like Juno, Yotta, and Yieldstreet, as they and their customers grapple with the repercussions of Synapse’s collapse.
At present, around $160 million deposited in Synapse is inaccessible to customers, according to Fintech Business Weekly. The process of reconciling and disbursing the remaining funds suggests that Synapse still owes approximately $158.6 million to customers, with a potential additional loss between $65 million to $95 million.
Synapse’s CEO, Sankaet Pathak, courting controversy with the launch of a new robotics startup amidst unresolved issues of $85 million savings, is under increased scrutiny from a group of senators. They insist that affected customers must regain access to their funds, and are pushing for swift action from the company, its banking associates, and investors.
Synapse’s downfall underscores the vulnerabilities of the fast-paced, high-risk fintech startup scene. Mistakes in its financial management, such as the ill-conceived asset liquidation plan, have led to severe consequences. This collapse affects numerous fintech startups, notably Juno and Yotta, bringing uncertainty to the fintech sector, and serving as a stark reminder of the importance of risk mitigation strategies.
