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WHAT HAPPENED WITH YOTTA: WHAT YOU SHOULD KNOW ABOUT USING FINTECH BANKS.
Fintech companies have brought about a “new way to do your banking”. We are all familiar with the Chimes, SOFIs, Stripe, Paypal, CashApp and Brex etc. These “new” types of banks are not all created equal...
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WHAT HAPPENED WITH YOTTA: WHAT YOU SHOULD KNOW ABOUT USING FINTECH BANKS.
Hello There 🙋♂️,
Welcome to this edition of "What’s Going On?"
Fintech companies have brought about a “new way to do your banking”. We are all familiar with the Chimes, SOFIs, Stripe, Paypal, CashApp and Brex etc. These “new” types of banks are not all created equal. Before I jump into Yotta, its important to provide a clear understanding of the differences, and similarities between traditional banks and fintech banks that use the Banking as a Service model (aka “BaaS).
Fintech banks such as Yotta offer banking services by PARTNERING with banks, rather than being actual banks themselves. The BaaS model allows non-banking institutions to basically “connect” to banks to offer banking services by using 3rd party, non-bank platforms that connect these fintech banks, to actual banks, so they can offer banking services to their customers.
These fintech banks are not banking institutions. They are able to provide banking services without having to spend years and millions of dollars to acquire a bank, or to go through the regulatory approval process of becoming an actual bank. These types of fintech banks use 3rd party (non-bank) platforms such as company called Synapse Financial Technologies, to connect to actual banks and allow for them to offer the services of a regular bank, while they themselves are NOT actual banks.
Basically, how it works is the fintech bank connects to Synapse, which in turn connects them to an actual bank. Synapse, a BaaS platform provider, is basically the middleman, between Yotta and the actual bank behind the scenes that hold the customer deposits and provide the services of a traditional bank such as checking and savings accounts, debit cards etc.
But as I said, these fintech banks are not all created equal. Fintechs such as SOFI or Ally are actually real banks. They hold actual bank charters and as with all banks, are federally regulated and members of the FDIC. Fintechs such as Yotta are NOT. They partner with FDIC member banks, but are not themselves members of the FDIC, nor are they federally regulated. This is where the problems lie in Yotta, and fintechs like Yotta.
Alexis ➤ Hey, Dean! So what happened to Yotta? |  |
| Dean ➤ Yotta’s failure is essentially a result of Synapse’s failure. Synapse recently declared bankruptcy, this resulted in Synapse no longer being able to operate leaving over 85,000 Yotta customers now in limbo. |
SO WHAT HAPPENED TO YOTTA?
Yotta’s failure is essentially a result of Synapse’s failure. Synapse recently declared bankruptcy, it failed because its largest customer decided to bypass Synapse and work directly with one of the primary bank’s in Synapse’s platform – Evolve Bank and Trust (an actual bank). This resulted in Synapse no longer being able to operate, losing its biggest customer and subsequently had to declare bankruptcy, with over 85,000 Yotta customers now in limbo, without any access to their bank accounts at Yotta.
The BIG problem is in the fact that it’s the Synapse platform that connects Yotta to the underlying bank – Evolve Bank and Trust, and when Synapse failed, they “turned off” the connection between Yotta and Evolve bank, basically locking out all Yotta customers from their bank accounts.
To make things worse, there appears to be a huge reconciliation problem with the Synapse platform. The record keeping data at Synapse is a mess, and the bankruptcy trustee (who takes over a company in bankruptcy to make orderly get creditors and customers paid) is not able to determine what money belongs to who, stating that the reporting data coming out of Synapse is not sufficient for them to accurately reconcile customer accounts at Yotta. Basically, Yotta says it has all these accounts and the what money belongs to which account, but on the Synapse platform, all the information isn’t reconciling. The bottom line is, until they resolve this, no customer of Yotta has access to their money.
THE REAL PROBLEM:
These fintech banks like Yotta, advertise they provide banking services like a traditional bank, including the FDIC insurance and so forth. But that isn’t necessarily true or accurate. FDIC and other federal government oversight on banks only apply to the financial institutions that are under the FDIC and oversight by federal regulators, aka Federally Chartered Financial institutions, aka Banks. Yotta and Synapse, are NOT federally chartered or regulated banks, so they are not “included” so to speak. The underlying bank – Evolve Bank and Trust - that provides services for Yotta customers IS a federally chartered bank, but the FDIC protection only applies if Evolve Bank and Trust fails, but not in the case of Synapse or Yotta.
The conundrum is that most fintech banks are not matured institutions with extensive operations staff and resources. Additionally, most of the banks that serve the fintech industry as “back-end” providers are smaller banks, also with limited operations staff and resources. This results in the fact that when something like this goes wrong aka the middleman platform is shut down, neither side of the equation had kept detailed, accurate and robust records. Everything works great until the middleman “breaks”.
In a recent update, the FDIC made it clear that the failure of non-banks won’t trigger FDIC insurance, and that even when fintechs partner with banks, customers may not have their deposits covered. Per the FDIC “What consumers understood was, ‘This is as safe as money in the bank,’” “But the FDIC insurance isn’t a pot of money to generally make people whole, it is there to make depositors of a failed bank whole.” And in this case, Evolve didn’t fail, it’s Synapse that failed, leaving Yotta customers in limbo. And the fact that Synapse IS NOT covered as part of FDIC insurance, it has opened a “can of worms” in the world of Fintechs using BaaS to become “banks”.
It is because of this fact that the FDIC has not stepped in to help Yotta users. Primarily its because Synapse is not part of the FDIC insurance for banks, AND also because it’s a huge mess right now to reconcile where Yotta customers funds are inside of Evolve Bank and Trust.
Anyone thinking about signing up with a Fintech Bank, I have included information below from the FDIC on how to make sure you know all the facts and understand the risks of using Fintech Banks for your personal or business banking needs, please take the time to review the information as it may save you a huge headache, like what has happened to Yotta customers right now…..
FDIC Resources from the FDIC website:
 | NEED A MORTGAGE? WORK WITH ALEXISPhone: +1-310-448-3009 Email: [email protected] NMLS: 2434190 |
AND THAT’S A WRAP
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