Federal Reserve Bank of Atlanta
I’m guessing that you, like me, have been riveted by news stories about the Synapse bankruptcy
. Synapse makes middleware that facilitates the connection between fintechs and financial institutions, enabling fintechs to assert the availability of pass-through Federal Deposit Insurance Corporation (FDIC) insurance for customer accounts and debit cards. Somewhere in the neighborhood of 100 fintechs, including Yotto, Juno, and Mercury, have used the service.
Now, some of those customers’ end-users do not have access to their funds due to complicated and twisted strands of accountability. Tens of millions of dollars are said to be missing, affecting thousands of customers.
Among the many interesting aspects of this situation: Many parties find their hands tied when it comes to helping the end-user customers of fintechs. For example,
- The bankruptcy judge may not be able to mediate a plan for distributing funds because account holders’ funds are not part of the bankruptcy estate.
- Banks holding the accounts need to verify the account balances and owners before they can disburse funds.
- Banks holding the funds are sound, so there is no role for the FDIC in making account holders whole.
- Bank regulators do not directly supervise fintechs, which are not banks.
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