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CEO of Savings App Reports 85,000 Accounts Locked in Fintech Crisis: ‘We Never Anticipated a Situation Like This’

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The fintech startup Yotta, co-founded by Adam Moelis in 2019, was created with the intention of providing a new way for Americans to save money and prepare for life’s uncertainties. However, a dispute between Yotta’s banking partners, Synapse and Evolve Bank & Trust, led to a crisis in May 2021. This dispute resulted in the lockup of accounts at Yotta and several other startups, leaving 85,000 customers unable to access their $112 million in savings. This has caused significant financial hardship for many customers, forcing them to borrow money for basic necessities and jeopardizing important events like surgeries and weddings.

The ongoing crisis at Yotta has shed light on the risks associated with the “banking as a service” model in fintech, which allows startups to offer savings accounts and debit services through partnerships with FDIC-backed banks like Evolve Bank. The dispute between Synapse and Evolve revolves around discrepancies in transaction ledgers and fund balances. While Synapse has declared bankruptcy and Evolve has blamed Synapse for the breakdown, the customers of affected fintech firms, including Yotta, have been left in limbo.

Moelis estimates that at least 200,000 customer accounts with balances are currently locked as a result of the Synapse failure, impacting primarily everyday Americans who lack the financial resources to lobby regulators for assistance. Despite the scale of the issue, regulatory agencies like the Federal Reserve and the FDIC have not intervened, leading Moelis to believe that the limited scope of the problem has contributed to the lack of regulatory action. However, former FDIC Chair Jelena McWilliams has been named trustee over Synapse’s bankruptcy proceedings, raising hopes for a potential resolution and the return of funds to affected customers.

In the midst of the crisis, Moelis remains focused on finding a solution to the situation, emphasizing that the money deposited by Yotta customers has not disappeared but is simply inaccessible due to the dispute between Synapse and Evolve. While the exact outcome remains uncertain, Moelis is hopeful that a resolution will be reached that allows customers to regain access to their savings. In the meantime, the situation serves as a cautionary tale for the fintech industry and highlights the importance of strong regulatory oversight to protect consumers and prevent similar crises in the future.

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