In the wake of the collapse of fintech intermediary Synapse, which left thousands of Americans stranded without access to their savings, there seems to be a glimmer of hope on the horizon. Banks involved in the debacle have reportedly made significant progress in piecing together account information for the affected customers. This progress could potentially lead to the release of funds in a matter of weeks, according to a reliable source who requested anonymity to speak candidly about the situation.
Regulators such as the Federal Reserve and the Federal Deposit Insurance Corp. have been exerting pressure on the banks involved to expedite the release of funds to the affected customers. The increased awareness of the issue among the media and lawmakers has also played a role in pushing for a resolution. Federal Reserve Chair Jerome Powell, in his testimony before the Senate Banking Committee, emphasized the importance of making the money available to the depositors who have been locked out of their accounts.
Evolve Bank & Trust and Lineage Bank have been particularly proactive in addressing the crisis. They hired a former Synapse engineer to assist in unlocking data from the failed fintech intermediary, which has proved to be a crucial step in the data recovery process. The optimism displayed by key figures involved in the negotiations, including Evolve founder and Chairman Scot Lenoir, indicates a shift from the previous gridlock that characterized the situation.
While progress has been made in piecing together customer accounts, challenges still remain. The lack of proper record-keeping and funds for forensic analysis has made it difficult to determine the exact amounts owed to each customer. The involvement of small banks in the “banking-as-a-service” sector has shed light on the risks associated with partnering with unregulated entities like Synapse. Bank regulators have reprimanded Evolve and other institutions for their shortcomings in managing such partnerships.
Despite the positive developments in account reconciliation, there is uncertainty surrounding the potential shortfall of funds. Up to $96 million owed to customers remains missing, as per bankruptcy trustee Jelena McWilliams. The looming question of how the main banks involved, including Evolve, Lineage, AMG National Trust, and American Bank, as well as Synapse, will address this shortfall could impede the repayment efforts.
The confusion regarding the ownership and control of customer funds has added to the complexity of the situation. Evolve Bank’s recent response to FINRA sought to clarify that while it held some payment processing funds, deposits from the app Yotta had shifted to a network of banks in late October 2023. Discrepancies between statements from Synapse, Evolve, and other entities involved further complicate the matter, raising concerns about the ultimate resolution of the crisis.
While there are promising signs of progress in unlocking frozen fintech accounts and releasing funds to stranded customers, the road ahead remains fraught with challenges. It is imperative for the banks and regulators to work together to ensure a swift and equitable resolution to this crisis, restoring faith in the integrity of the financial system and safeguarding the interests of the affected depositors.