Savings App CEO Reveals 85,000 Accounts Locked in Fintech Crisis: 'We Never Anticipated Such a Scenario'

Boston Brand Media brings you the latest news - The CEO of a savings app discloses a fintech crisis, with 85,000 accounts locked, expressing surprise at the unforeseen situation. This revelation underscores the challenges and complexities faced by fintech companies in managing unexpected disruptions, emphasizing the importance of robust risk management and contingency planning in the financial technology sector.

Key highlights

1. Yotta CEO Adam Moelis revealed to CNBC that for the past three weeks, 85,000 Yotta customers, holding a collective $112 million in savings, have been unable to access their accounts.
2. Moelis explained that the disruption stemmed from a disagreement between fintech intermediary Synapse and Evolve Bank & Trust in Tennessee, causing significant turmoil for affected individuals.
3. Expressing surprise and frustration, Moelis stated, "We never imagined a scenario like this could play out and that no regulator would step in and help."

When Adam Moelis co-founded Yotta, a fintech startup, in 2019, his goal was to provide Americans with a fresh approach to saving money, offering a safety net for life's uncertainties. However, instead of fulfilling this vision, Yotta has inadvertently become a source of profound distress for thousands of customers who relied on the platform for various financial needs, including receiving paychecks, paying bills, and saving for emergencies.

Boston Brand Media looked into the crisis unfolded on May 11 when a disagreement between two of Yotta's banking partners, Synapse and Evolve Bank & Trust based in Tennessee, resulted in the freezing of accounts at Yotta and at least two dozen other startups. Earlier this year, Synapse filed for bankruptcy after losing several key clients due to disputes over the management of customer funds.

Over the past three weeks, approximately 85,000 Yotta customers, holding a total of $112 million in savings, have been unable to access their accounts, as revealed by Moelis in an interview with CNBC. This disruption has caused significant upheaval in the lives of affected individuals, forcing them to borrow money for basic necessities and casting uncertainty over important upcoming events such as surgeries or weddings.

Moelis expressed profound dismay at the situation, describing the stories of affected customers as heartbreaking. He emphasized that Yotta had collaborated with banks affiliated with the FDIC, and never anticipated such a scenario unfolding. Moelis also expressed disappointment that regulators had not intervened to assist in resolving the crisis.

‍Highs and Lows of Economic Cycles

The ongoing turmoil has brought to light the risks inherent in a segment of fintech that gained prominence amid a surge in venture investment, and its ramifications are likely to echo for years as regulators intensify their scrutiny of the industry.

Known as the "banking as a service" model, this approach enabled consumer fintech companies to swiftly introduce savings accounts and debit services, with intermediaries like Synapse facilitating connections between startups and FDIC-backed banks responsible for holding deposits.

At the core of the dispute between Synapse and Evolve Bank lies a fundamental aspect of finance: maintaining accurate records of transactions and balances. The disagreement between Synapse and Evolve revolves around the allocation of Yotta's funds, with conflicting assertions about the proportion held at Evolve compared to other banks partnered with Synapse.

While Synapse has not responded to requests for comment, Evolve has attributed the breakdown to Synapse.

The fallout from Synapse's bankruptcy has predominantly affected lesser-known consumer fintech firms, particularly following the departure of larger players like Mercury and Dave from the Synapse platform over the past year.

Consequently, Yotta, renowned for its promotion of savings through free weekly lottery-style sweepstakes, stands out as one of the most prominent casualties. Additionally, accounts at crypto firm Juno and Copper, which offered savings solutions for families and teens, have also been frozen as a result of the turmoil.

‍Non-Systemic Financial Crisis

Moelis, who has been communicating with other fintech leaders affected by the Synapse debacle, approximates that a minimum of 200,000 customer accounts with balances are currently inaccessible. Despite Synapse's assertion in court documents that it serves 10 million end users, Moelis suggests that the number of active accounts is considerably lower.

The fintech co-founder suggested that regulators may have allowed the situation to unfold due to its relatively contained nature, combined with the fact that most affected individuals are not affluent. He highlighted that last year, regulators swiftly intervened in a regional banking crisis that posed a threat to uninsured deposits of both startups and wealthy families.

"To me, if this was happening on a larger scale, I think regulators would have taken action by now," he remarked. "We're dealing with real, everyday Americans who aren't necessarily wealthy and lack the means to advocate for themselves, and they're the ones being affected."

Both the Federal Reserve and the Federal Deposit Insurance Corp. have refrained from commenting on the matter. Representatives from these agencies have referenced their efforts to encourage banks to effectively manage the risks associated with partnering with fintech firms.

‍The Mystery Behind Financial Disappearances

Moelis finds encouragement in recent developments within the California bankruptcy court overseeing the Synapse collapse, suggesting that there may be some relief in sight, such as a partial release of funds.

Former FDIC Chair Jelena McWilliams was appointed trustee over Synapse last week, tasked with devising a plan to uphold Synapse systems and devise a solution for the prompt return of funds to end users, as emphasized by Judge Martin Barash.

Moelis remains impartial to the dispute between Evolve and Synapse, expressing a singular desire for resolution. "I don’t know who’s right or who’s wrong," he stated. "We know how much money came into the system, and we are certain that that’s the correct number. The money doesn’t just disappear; it has to be somewhere."

For questions or comments write to writers@bostonbrandmedia.com

Source:CNBC