Fintech promised consumers inconvenience and security while entrusting their funds to established banks under FDIC protection. Yet, the collapse of Synapse has shattered this illusion for over 100,000 Americans, freezing $265 million in deposits.

According to a report by CNBC, customers deposited their earnings into the app, only to find their thousands of dollars locked in legal suspension since May 11. 

Synapse, a linchpin in the "banking as a service" model, facilitated transactions for numerous fintech startups like Yotta through partnerships with banks like Evolve Bank & Trust. This intermediary role proved fatal when Synapse's bankruptcy suddenly stopped all critical transaction processing systems, leaving thousands stranded financially.

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Laws on Fintech

The fallout extends beyond personal hardship to systemic questions about fintech's regulatory framework. According to American Banker, the impact is expected to reverberate through industry giants like Cash App, PayPal, and Chime, which rely on similar third-party arrangements. 

In response to Synapse's bankruptcy, democratic senators have urgently called upon Synapse's major equity holders, fintech partners, and affiliated banks to prioritize the immediate release of frozen customer deposits. 

Since mid-May, thousands of customers have been unable to access their funds, prompting widespread financial distress. The senators emphasized that stakeholders, including major investors like Andreessen Horowitz and banks like Evolve Bank, must collaborate to resolve the estimated $65 to $96 million shortfall and restore consumer trust.

As of June 2024, VCPost reported that $85 million in customer savings are still considered "missing" and presumed frozen.

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