In the midst of the chaos caused by the collapse of fintech intermediary Synapse, there seems to be a ray of hope for the many Americans who have had their savings locked in frozen accounts for the past two months. Banks involved in the situation have reportedly made significant progress in piecing together account information for stranded customers. This positive development could potentially lead to a release of funds in the coming weeks, offering much-needed relief to the affected individuals.
Regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., have been exerting pressure on the banks involved to swiftly release the funds to the customers. Media coverage and increased scrutiny from lawmakers have also played a role in raising awareness about the situation, pushing for a resolution to the debacle that has left over 100,000 customers of fintech apps such as Yotta, Juno, and Copper locked out of their accounts.
The recent optimism among key players involved in the negotiations, such as Evolve founder and Chairman Scot Lenoir, marks a notable shift after weeks of apparent gridlock in a California bankruptcy court. The lack of proper record-keeping and insufficient funds for a forensic analysis have made it challenging to determine the exact amount owed to each customer. Additionally, the episode has shed light on how small banks in the “banking-as-a-service” sector failed to adequately manage unregulated partners like Synapse.
Reconciliation Efforts and Potential Shortfalls
Initially, Evolve Bank had planned to release $46 million from payment processing accounts to provide partial payments to fintech customers. However, a recent change in plans suggests that a more comprehensive reconciliation of customer accounts may be feasible. Despite this progress, uncertainties remain regarding how the four main banks involved – Evolve, Lineage, AMG National Trust, and American Bank – along with Synapse, will address a possible shortfall of up to $96 million owed to customers.
Amidst the ongoing situation, there appears to be confusion surrounding the possession and control of customer funds. Evolve Bank recently responded to queries from its regulator, FINRA, clarifying that while it holds some payment processing funds, deposits from the Yotta app were transferred to a network of banks in late October 2023. Contradictory statements from Synapse and Evolve regarding the movement of funds have only added to the complexity of the situation, creating further ambiguity for all parties involved.
While there is some progress being made in the efforts to release the frozen fintech funds to the affected customers, significant challenges and uncertainties still loom ahead. The collaboration between banks, regulators, and fintech intermediaries will be crucial in navigating the complexities of the situation and ensuring a fair and transparent resolution for all parties involved.