A reevaluation of risk management and regulatory oversight is transforming the bank-FinTech partnership model.
At the center of this shift is the April collapse of Synapse, a banking-as-a-service (BaaS) provider, and its subsequent ongoing fallout which has expanded to include four banks, including American Bank, AMG National Trust, Evolve Bank and Trust and Lineage Bank.
At one point, Synapse’s platform served around 120 FinTech customers, had 2 million active users, $60 billion in annualized money movements and $3 billion in card-based spending. Synapse, as its name implies, served as the connective tissue linking FinTech companies with traditional banks, enabling non-bank entities to offer banking services, in part by keeping track of the money.
Except, as stressed most recently in a Nov. 12 court filing, Synapse did not keep track of the money at all.
“Although many end users still have not received the amount of deposits due to them based on the Synapse ledger, the estate does not have the funds to implement an independent reconciliation nor any remaining operations or employees to participate in these efforts,” stated Synapse bankruptcy trustee, Jelena McWilliams.
Many users were unaware that their funds, though held in FDIC-insured banks, were not directly insured due to the intermediary role of companies like Synapse. The impact of the ledger failure has been ruinous for thousands of American FinTech customers, many of whom have lost sums that include life savings of hundreds of thousands of dollars and who have collectively borne the brunt of the tens of millions in unaccounted-for funds.
Read more: Compliance Remains a Constant for Bank-FinTech Partnerships
Synapse’s failure highlighted fundamental weaknesses in the BaaS model. Operational fragility was a major issue, as discrepancies in account management and frozen funds pointed to inadequate record-keeping and transparency. This situation emphasizes the critical need for accurate and transparent record-keeping in bank-FinTech partnerships to ensure consumer funds’ safety and accessibility.
“Sometimes making it simple and making it look simple doesn’t mean you did it right,” Ingo Payments CEO Drew Edwards told PYMNTS. “Later you’ll pay the price for improper simplicity.”
One of the most visible examples of improper simplicity, Edwards said, can be seen with Synapse.
“My sense is they tried oversimplification,” he said, “and potentially took millions of consumers’ money accounts, and put them into a single commingled omnibus account without proper real time or even daily reconciliation of very complicated money in and money outflows.”
Regulatory oversight also came under scrutiny, revealing that existing frameworks were insufficient to address the complexities of bank-FinTech relationships. Additionally, consumer protection gaps became glaringly apparent, with many customers realizing too late that their deposits, while held in FDIC-insured banks, were not directly insured due to Synapse’s intermediary role.
“It’s very clear in hindsight that Synapse was not executing on its duty to reconcile dollars,” Amias Gerety, a partner at QED Investors, told PYMNTS in an interview posted June 17.
But while the Synapse bankruptcy revealed systemic flaws, it also provides an opportunity for banks and FinTechs to strengthen their collaboration frameworks. The lessons learned from this failure will likely shape the next wave of innovation, leading to partnerships that are more resilient, transparent and aligned with regulatory expectations.
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One of the biggest challenges for small and mid-sized financial institutions is overcoming legacy technology that limits their ability to offer the type of modern payment solutions and financial services experiences that digitally native end users have come to expect.
According to data from PYMNTS Intelligence research, 65% of banks and credit unions have launched at least one FinTech partnership in the past three years, with 76% of banks seeing such collaborations as essential to meeting customer expectations.
Alexander Knothe, head of client solution and partner management at Deutsche Bank, told PYMNTS that relationship between traditional financial institutions and FinTech companies has shifted from one of pure competition to what Knothe termed “coopetition” — a mixture of cooperation and competition. While FinTechs have expanded their role in providing payments solutions, banks are adapting to modernize their infrastructure and services. This competition has been heightened by a focus on counterparty risk, he added.
By sharing risk management strategies and co-developing financial products, banks and FinTechs can work together to create solutions that integrate seamlessly across platforms. Investment in cutting-edge technologies such as artificial intelligence could help further streamline operations and enhance security, building partnerships that are both efficient and resilient.
Ultimately, the future of bank-FinTech partnerships will be defined by the ability to balance agility with accountability. Banks and FinTech companies that can navigate these complexities will not only avoid the pitfalls of the past but also lay the groundwork for a new era of financial innovation — one that prioritizes consumer trust, regulatory compliance and operational excellence.
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