In 2019, Adam Moelis founded Yotta, a fintech startup with the intention of providing Americans with a novel approach to saving money. However, what began as a venture to help individuals navigate life’s financial ebbs and flows, has now turned into a source of immense anguish for countless customers. The troubles for Yotta commenced on May 11, triggered by a rift between two of its banking affiliates – Synapse, a fintech intermediary, and Evolve Bank & Trust based in Tennessee. This disagreement culminated in the freezing of accounts for Yotta and approximately twenty-four other startups. Synapse’s declaration of bankruptcy earlier this year, following the departure of key clients amid disagreements regarding the management of customer funds, only exacerbated the situation. As a result, 85,000 Yotta customers, holding a collective total of $112 million in savings, found themselves locked out of their accounts for the past three weeks, according to Moelis speaking to CNBC. This disruptive turn of events has not only had financial repercussions but has also cast a shadow on important life events for users, such as surgeries or weddings, leaving them in a state of uncertainty and financial strain.
The meltdown at Yotta has laid bare the perils lurking within a niche of the fintech industry that soared in popularity during a period of venture capital injection into the market. The “banking as a service” model, which allowed consumer fintech enterprises to swiftly introduce savings accounts and debit services, hinged upon firms like Synapse serving as a conduit between startups and FDIC-insured banks where the funds were held. The crux of the discord between Synapse and Evolve Bank revolves around a fundamental aspect of financial management: maintaining accurate records of transactions and balances. Allegations abound about the disparity in the amount of Yotta’s funds held at Evolve as opposed to other banks partnered with Synapse. Synapse has remained mum on the matter, while Evolve has placed the blame squarely on Synapse for the breakdown in their partnership. The fallout from Synapse’s bankruptcy has predominantly ensnared lesser-known consumer fintech companies, especially subsequent to more prominent players like Mercury and Dave severing ties with Synapse over the past year. Yotta, known for its unique savings approach through lottery-style sweepstakes, stands as one of the largest casualties in this saga. Alongside Yotta, accounts at other firms like Juno and Copper, catering to crypto and family savings, respectively, have also been frozen, leaving a trail of financial distress in their wake.
The Federal Reserve and the FDIC have refrained from making any public comments on the unfolding crisis, referencing efforts to urge banks to prudently manage risks associated with fintech partnerships. Nonetheless, developments in the California bankruptcy court overseeing the Synapse debacle offer a glimmer of hope for some relief. Former FDIC Chair Jelena McWilliams has been appointed as trustee for Synapse, tasked with devising a plan to sustain Synapse’s systems and facilitate the swift return of funds to affected users, as per Judge Martin Barash. Moelis, while impartial to the dispute between Evolve and Synapse, remains steadfast in his desire for a resolution. Despite the uncertainties and setbacks faced by Yotta and its customers, he remains hopeful that a resolution, or at least a partial release of funds, may be on the horizon in the near future.
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