Oscar Wong | Moment | fake images
When Adam Moelis co-founded a fintech startup called Yotta in 2019, he wanted to give Americans a new way to save money to help cushion life's ups and downs.
Instead, his company has inadvertently been a source of deep pain for thousands of customers who relied on Yotta accounts to receive paychecks, pay bills, and save for emergencies.
The crisis began on May 11, when a dispute between two of Yotta's banking partners (fintech broker Synapse and Tennessee-based Evolve Bank & Trust) led to the blocking of accounts at Yotta and at least two dozen others. of new companies. Synapse filed for bankruptcy protection earlier this year after several key customers left the company amid disagreements over the tracking of customer funds.
Over the past three weeks, 85,000 Yotta customers with a combined savings of $112 million have been locked out of their accounts, Moelis told CNBC. The outage had disrupted lives, forced users to borrow money to buy food and called into question upcoming events like surgeries or weddings, she said.
“The stories are heartbreaking,” Moelis said. “We never imagined that something like this could happen. We work with banks that are members of the FDIC. We never imagined that a scenario like this could unfold and that no regulator would step in and help.”
Rise and fall
The current mess has exposed risks in a financial technology sector that grew in importance during a venture investing boom, and will likely reverberate for years as regulators increase scrutiny of the space.
The so-called “banking-as-a-service” model allowed consumer financial technology companies to quickly launch savings accounts and debit services, with companies like Synapse acting as a bridge between the startups and the FDIC-backed banks that ultimately maintained the deposits.
The crux of the dispute between Synapse and Evolve Bank has to do with a fundamental function of finance: maintaining accurate accounting books of transactions and balances. Synapse and Evolve disagree over how much of Yotta's funds are held at Evolve and how much is held at other banks Synapse worked with.
Synapse has not responded to requests for comment and Evolve has blamed Synapse for the failure.
Synapse's bankruptcy has mainly ensnared lesser-known consumer fintech companies, especially after larger fintech players including Mercury and David fled the Synapse platform last year.
That has left Yotta, which encouraged users to save money with free weekly lottery-style drawings, as one of the biggest companies affected. The accounts of the cryptocurrency company Juno and Copper, which offered savings accounts for families and teenagers, were also frozen.
Non-systemic collapse
Moelis, who has been in contact with other fintech directors affected by the Synapse failure, estimates that at least a total of 200,000 customer accounts with balances are blocked. While Synapse has said in court filings that it has 10 million end users, active accounts are likely much smaller, Moelis said.
Adam Moelis, co-founder of Yotta Savings.
Courtesy: Yotta
The fintech co-founder said he believes the relatively limited scope of the problem and the fact that most of those affected are not wealthy has given regulators permission to let the situation play out. Last year, regulators intervened quickly in the regional banking crisis that threatened the uninsured deposits of startups and wealthy families, he noted.
“To me, if this was happening on a larger scale, I think the regulators would have done something by now,” he said. “We have real, everyday Americans who aren't necessarily wealthy and don't have the ability to lobby who are being affected.”
The Federal Reserve and the Federal Deposit Insurance Corporation have declined to comment on the matter. Agency representatives have noted the efforts they have made to encourage banks to manage the risks of using fintech partners.
“Money doesn't just disappear”
But developments in the California bankruptcy court overseeing Synapse's bankruptcy give Moelis hope that at least some relief (perhaps a partial release of funds) will come.
Last week, former FDIC Chair Jelena McWilliams was named a trustee of Synapse. Her job is to develop a plan to maintain the Synapse systems and design a solution “that allows the funds to be returned to the end users, the rightful owners of those funds, as soon as humanly possible,” the judge said. Martin Barash.
For his part, Moelis said he does not side with Evolve or Synapse in their dispute; he just wants the situation to be resolved.
“I don't know who's right or who's wrong,” he said. “We know how much money went into the system and we're sure it's the right number. The money doesn't just disappear; it has to be somewhere.”
