Customers say they can’t access funds

A dispute between a fintech startup and its banking partners has potentially trapped millions of Americans, leaving them without access to their money for nearly two weeks, according to recent court documents.

Since last year, Synapse – supported by Andreessen Horowitz launch which serves as an intermediary between customer-facing fintech brands and FDIC-backed banks—has had disagreements with several of its partners over the amount customers owe.

The situation worsened in April after Synapse filed for bankruptcy following the departure of several key partners. On May 11, Synapse disabled access to the technology system that allowed creditors, including Evoluv Bank and Trustto process transactions and account information, according to the documents.

Users of several fintech services have found themselves stranded without access to their funds, according to evidence filed this week in California bankruptcy court.

One client, a Maryland teacher named Chris Buckler, said in a May 21 statement that his funds were in the crypto app Juno were blocked due to the bankruptcy of Synapse.

“I am increasingly desperate and don’t know where to turn,” Backer wrote. “I am left with about $38,000 due to the transaction processing stoppage. It took years to save this money.”

Until recently, Synapse, which calls itself the world’s largest banking-as-a-service provider, helped provide services such as checking accounts and debit cards to a wide range of US fintech players. Including former partners Mercury, Dave and Juno, prominent fintech firms that catered to segments such as startups, workers, and cryptocurrency users.

According to an April statement from Synapse’s founder and CEO, Synapse had contracts with 20 banks and 100 fintech companies, resulting in approximately 10 million end users. Sankaet Pathak.

Pathak did not immediately respond to an email seeking comment. An Evolve representative declined to comment, instead pointing to statement On the bank’s website, in particular, it read:

“Synapse’s sudden shutdown of key systems without prior notice and failure to provide required records placed end users at unnecessary risk by preventing us from verifying transactions, confirming end user balances and complying with applicable laws,” the bank said.

It is unclear why Synapse disabled the system, and an explanation could not be found in the documents.

Another client, Joseph Dominguez of Sacramento, California, said On May 20, it was revealed in bankruptcy court that he had more than $20,000 in liens. Yotta fintech account.

“We are afraid that money will be lost if Synapse cannot provide the books and documents to Evolve or Yotta to prove that we are the rightful owners,” Dominguez wrote. “We don’t know where our direct deposit went, we don’t know where our pending withdrawals are currently being held.”

The freeze on customer funds exposes the vulnerabilities of the banking-as-a-service, or BAAS, partnership model and a possible blind spot for regulatory oversight.

The BAAS model, primarily used by pre-IPO fintech company Chime, allows Silicon Valley-style startups to leverage the power of smaller FDIC-backed banks. Together, the ecosystem has helped these companies compete with the giants of American banking.

Customers mistakenly believed that because the funds were ultimately held in physical banks, they were as safe and accessible as any other FDIC-insured account, he said. Jason Mikulaconsultant and newsletter writer who has followed the case closely.

“That’s over 10 million people who can’t pay their mortgage, can’t buy food… This is another disaster,” Mikula said.

Regulators have yet to weigh in on the dispute, in part because the banks involved have not failed, which is when the FDIC typically steps in to restore integrity to customers, Mikula added.

The FDIC and Federal Reserve did not immediately return calls seeking comment.

Addressing the judge in this case, Martin BarashTo help affected customers, Buckler noted in his review that while he had other resources beyond a suspended account, others were not so lucky.

“So far, the federal government has been unwilling to help us,” Buckler wrote. “As you have heard, millions of victims are in much worse situations.”

Reached by phone Wednesday, Buckler said he had one message for Americans:

“I want people to know that yes, your money can be safe in the bank, but it’s not safe if the fintech or processor goes down,” he said. “If this is another FTX, if they did weird things with my money, then what?”