The traditional belief in the safety of putting savings in federally insured banks is being challenged by a crisis involving online-only lenders with millions of dollars in deposits. Companies such as Juno, Yieldstreet, and Yotta, backed by Silicon Valley venture capitalists, offer appealing accounts with higher interest rates and lower fees. However, the recent bankruptcy of Synapse Technology, which provided banking software to these online lenders, has caused chaos, leading to frozen accounts and confusion among depositors regarding the whereabouts of their funds.
Despite looking and feeling like banks, these online lenders are not banks themselves but rather intermediaries that pass customer money to traditional banks like Evolve Bank & Trust. The bankruptcy of Synapse has revealed the complexities of this financial chain, leaving customers struggling to access their funds. The situation is further complicated by the lack of direct legal authority for agencies like the Federal Deposit Insurance Corporation (FDIC) to intervene, leaving many account holders in limbo as they try to recover their money.
The aftermath of Synapse’s bankruptcy has led to a significant shortfall in funds handled for lenders, with millions potentially never being recovered. Customers, known as “end users” by these lending start-ups, are left in a state of uncertainty, with little clarity on who currently holds their funds. Despite the effort to resolve the situation, the blame game between companies like Yotta, Synapse, and Evolve continues, leaving affected individuals frustrated and uncertain about the future of their investments.
