According to The Wall Street Journal, a man named Sankaet Pathak “felt banking in America was stuck in the analog era when he moved from India. He started a company named Synapse from his apartment in 2014 and began working with start-ups that were looking to offer software-enabled savings products.”
Banking stuck in the “analog era”? That’s not true.
Banks are rightfully heavily regulated to protect customers’ deposits. And some tech people specialize in ridiculing banks for not being on the cutting edge. But the U.S. government wants people to be able to have faith in the U.S. banking system – not to have banks be “exciting.”
The term “fintech” covers a lot of businesses – including unregulated “banking-as-a-service” startups like Synapse was – according to WealthManagement.com. The Wild West aspect can become a big problem as some Synapse customers learned to their shock and disbelief when their money went missing in April 2024.
It’s a very complicated story. Basically these are the facts: According to The Wall Street Journal, Synapse partnered with Evolve – “a sleepy farming bank” – to offer “technologically-friendly savings accounts for everyday people with sweeteners like high interest rates. Synapse’s job was to ensure that funds were accounted for, while Evolve would open accounts and issue debit cards to customers.”
Evolve is a chartered bank with FDIC insurance. People who opened these accounts believed their money was FDIC insured. But it turns out their accounts weren’t technically with Evolve.
Again, according to The Wall Street Journal, “The funds of over 100,000 customers were kept in large, commingled accounts under Synapse’s management.” After Synapse went bankrupt, it seems that as much as $96 million in customers’ money had gone missing, according to a court-appointed mediator. Synapse – not a bank – did not have FDIC insurance.
What a mess.
“Move fast and break things” is many tech companies’ official or unofficial motto.
When things go wrong, these fintech executives usually just pack up and move on. It’s not right and it’s not fair.
(WealthManagement.com reports that Synapse founder and CEO Sankaet Pathak has moved on. He apparently announced last August that he has “raised $11 million for a new robotics startup called Foundation.” Of course.)
The Synapse/Evolve customers did not do anything wrong – in fact, they were likely purposely mis-led to believe their money was FDIC-insured when it just wasn’t.
What can you do to protect yourself if you are thinking of depositing money in a fintech? Definitely do as much due diligence as you can – tho’ it can be difficult to be 100% sure because sometimes these fintechs misrepresent the facts.
When Tennessee Valley Federal Credit Union wrote about the Synapse fiasco, they pointed out that “the troubling reality is that the money you hold with fintechs might not be as protected as you think.” A fintech with a bank partner does not necessarily guarantee that customers’ money is FDIC insured. Seeing an FDIC logo is not enough.
Ideally you never want to keep more money in any uninsured fintech – not even popular, useful mobile payment apps – than you can very comfortably afford to lose. It’s best to transfer funds from fintechs to a traditional FDIC-insured bank account on a regular basis.
Regulations are guardrails that protect customers. Be wary of deals with uncommonly high “sweetener” rates. They may have more risk and undisclosed risk – especially when the offers come from unregulated banking-as-a-service fintechs with limited oversight and a habit of bashing their “boring,” highly-regulated competitors like banks.
From the “Smart About Money” Canton Citizen column published on May 15 2025.
Nick Maffeo is the President & CEO of Canton Co-operative Bank – right next to the Post Office – in Canton.
Have a question? Email to info@cantoncoopbank.com.