San Francisco, California – A banking dispute between two financial entities has caused turmoil for thousands of Yotta customers, locking them out of their accounts and leaving $112 million in savings inaccessible. The conflict between Synapse, a fintech middleman, and Evolve Bank & Trust in Tennessee led to the freeze of accounts at Yotta and several other startups. The situation has disrupted the lives of 85,000 customers, forcing some to seek financial aid for necessities and casting uncertainty over important events like surgeries and weddings.
The ongoing crisis sheds light on the risks associated with the “banking as a service” model in fintech, which has gained traction in recent years due to increased venture investment. This model allowed fintech companies to provide savings and debit services swiftly by partnering with FDIC-backed banks through intermediaries like Synapse. However, disagreements between Synapse and Evolve Bank have highlighted the importance of maintaining accurate records of transactions and balances in the financial sector.
As the Synapse bankruptcy continues to unfold, smaller consumer fintech firms have been most affected, with larger players like Mercury and Dave severing ties with Synapse. Yotta, known for its savings incentives through lottery-style sweepstakes, finds itself among the top companies impacted by the dispute. Other firms like Juno and Copper have also seen their accounts frozen, leaving thousands of customers in limbo.
Adam Moelis, co-founder of Yotta Savings, estimates that over 200,000 customer accounts are currently locked, with uncertainties surrounding the total impact on end users. Despite the lack of regulatory intervention, Moelis remains hopeful that a resolution, such as a partial release of funds, may be on the horizon with the appointment of a trustee over Synapse in the California bankruptcy court.
The involvement of former FDIC Chair Jelena McWilliams as trustee provides a glimmer of hope for affected customers, as efforts are made to expedite the return of funds to rightful owners. While Moelis refrains from taking sides in the dispute between Synapse and Evolve, he emphasizes the need for a swift resolution to ensure that the funds are accounted for and made accessible to those affected. The situation serves as a cautionary tale for the fintech industry, prompting regulators to increase scrutiny and encourage banks to manage risks associated with third-party fintech partners.