The collapse and bankruptcy of BaaS fintech Synapse have highlighted the vulnerabilities within the interconnected fintech ecosystem. Synapse, a San Francisco-based startup, offered services that allowed other fintech companies to integrate banking functionalities into their products. This included features like instant payment for payroll services and specialized credit and debit cards. Synapse raised over $50 million in venture capital during its operation, with a notable $33 million Series B round in 2019 led by Andreessen Horowitz's Angela Strange. However, the company faced difficulties in 2023, leading to layoffs and ultimately filing for Chapter 11 bankruptcy in April. Synapse attempted to sell its assets in a $9.7 million deal to another fintech company, TabaPay, but the deal fell through.
The failure of Synapse has cast doubt on the viability of the banking-as-a-service model and digital banking overall. As a result, nearly $160 million in deposits from millions of consumers are currently inaccessible. This situation underscores the potential risks in the fintech sector, where the downfall of a key player can have widespread repercussions. Observers are now questioning the stability and reliability of fintech solutions that rely heavily on interdependent relationships within the industry.
