The linked website for Yotta is withyotta.com which looks like some sort of online gambling site? The slogan is "Play games. Win Big." Am I missing something? It doesn't look like something I'd trust to put any amount of money into.
Looking at archive.org for September 2023 [1] they claim an "average annual savings reward" of "~2.70%*". At a real major US bank, I was getting 4.65% in my savings account at this same time.
Reading the terms at the bottom of the page it says: "Please note that the approximate Average Annual Savings Reward of 2.70% is a statistical estimate based on the probabilities of matching numbers each night. The Annual Savings Reward will vary from member to member depending on one’s luck in the Daily Drawings and is subject to change in the future."
Yotta marketed itself as a "bank" where every time you deposited to savings you would get a free lotto ticket for the month based on how much you deposited. They did this by offering below average interest rates on savings then parking people's money in accounts at banks with higher interest rates than they paid out and pulling some of the difference into a prize pool. Over time (very quickly actually) to increase revenue they pivoted into more traditional gambling.
Notably, Yotta is neither a bank nor a payment processor. They are just an "app" front end. Yotta's processor went bankrupt and the fintech bank they were working with to hold the accounts now disputes the amount of money they actually are holding to the tune of ~$96M being missing. This will probably be in courts for several years while things are unwound, someone will go to jail for financial crimes, and a lot of people will never be made whole. Some people have called for the FDIC to step in, but the FDIC has helpfully pointed out that no FDIC insured account has defaulted which is the necessary condition for FDIC insurance to pay out.
“Play Games. Win Big.” seems to be their current website’s slogan. In your archive link the same text instead reads “Banking for Winners”, which helps explain why people would be putting their life savings into this thing. In the small text below, they did say “Yotta is a financial technology company, not a bank.”, but that was immediately followed by: “Banking services provided by Evolve Bank & Trust and Thread Bank; Members FDIC.”
And they weren’t lying about that. This isn’t some cryptocurrency rug pull. They really were operating under the regulated financial system, in concert with banks. It isn’t even a situation where someone stole the money, as far as anyone can tell.
Sure, perhaps customers should have avoided the company for independent reasons, like the bad interest rate or the risk of it being an outright scam. But it’s hard for me to blame them when the actual failure mode was completely different and unexpected.
The core issue seems to be that a company named Synapse was a middleman to a lot of fintech startups and spread money around various banks but didn't actually keep very accurate records of balances. Evolve bank noticed this and hired a fancy consulting firm named Ankura to reconcile 100 million transactions. But most of the money is still lost in the various banks that Synapse used. The core issue is why is it so hard to use Synapse's records to find where the money is? And the various banks that Synapse used should be able to work together to reconcile the money. I wonder if most the missing money was just embezzled.
That link shows 2.7% in Sept., 2023. It should have been more like 5%.
The yellow flag should have been the sketchy "win prizes" part of their offering that the article didn't really mention. What's this pseudo bank's innovation? A raffle?
I still agree that weren't actual signs of sloppy accounting customers should have seen, and as it really does look like customer funds were supposed to get deposited in an actual bank.
In finance, you should never assume incompetence over malice. It very rarely works out that way. Malicious incompetence maybe.
This is probably a rug pull in a system designed for money laundering. They can’t figure out where money came from or who it belonged to…. I don’t think that happened out of the blue using standard accounting practices.
By mixing non-bank money companies and traditional banking services, you can construct an effectively opaque and ultra efficient system to obfuscate the origins of funds, all without deviation in an obvious way from what looks like standard accounting. All of the best money laundering happens in plain sight within the banking industry through clever constructions. AML rules are just there to eliminate the competition.
My guess is that it was time to shut down and the fingerprints had to be burned. Maybe no customer money was stolen, but the data of who has what money and who it belonged to might be hopelessly obfuscated in the process of obfuscation of their primary activities.
This is not likely an example of sloppy accounting, but rather of very, very clever accounting and orchestrated fraud to make money disappear out of an otherwise well designed system of accounting. The real question is where did the fraud propagate out of? What was the exploit, what was the systemic vulnerability, and who exploited it?
There is a huge incentive in fintech to create “legitimate products“ where John Q. Public deposits funds that just happen to be very useful for money laundering when combined with some other, apparently unrelated activity or similar lever that only an insider knows how to pull. It works fundamentally like a cryptocurrency coin mixer, without the hassle or suspicious profile. Shifting burdens of documentation often have gaps where things can “get lost” and shell companies that act only as conduits and never hold funds can evaporate with little accountability. Often, “unknowing” accomplice banks are left holding the bag…but all you have to figure out is where to repatriate the money that people will come looking for, the flows you know no one is going to come asking about effectively never happened.
Meanwhile it’s very easy to take a margin of 10 percent or more of the flows. And they aren’t small flows. It’s a multibillion dollar market. The demand and the incentives are absolutely spectacular.
For the most part, these crimes are invisible to the public, very difficult to prosecute, and effectively impossible to garner the political support to even launch an investigation into, for reasons.
I hope the hapless victims at least get their money back some day.
I disagree with this previous premise: In finance, you should never assume incompetence over malice. It very rarely works out that way. Malicious incompetence maybe.
I suspect it's informed more by confirmation bias fed by the news cycle than actual facts. And Misty likely the rule of thumb featuring incompetence still holds.
I have very good reason to believe otherwise, but I do prefer your view of the world if given a choice. It’s a happier path to stay on until you find it no longer fits your experience.
Kinda like the billions of dollars that the DOD “can’t” account for.
You ever try to get the DOD to hand you a few million dollars? There’s a bit of paperwork involved.
Accounting is not hit or miss, and it’s not exactly an unexplored frontier. Its a pretty safe bet that when a well funded, fully staffed organization “can’t” account for some amount of money, it’s because someone along that path wanted it to be that way, or was negligent in such a way that it is equivalent to intent.
Whenever I've got a chance to make half the going interest rate on my money, I want it to be with some disruptive fintech bro startup with a silly name. That's just how I roll.
Yes but I don’t perceive them as a “major US bank”. I was expecting that term to mean the largest banks for typical consumers like Bank of America or Wells Fargo or Chase. Everbank is small, and GS is mostly an investment bank rather than a retail bank.
Marcus, which is GS Bank, is certainly a retail product aimed at consumers.
Capital One, Discover, Ally, etc. were offering 4.35% at the peak. Not quite as good, but very decent for a savings account.
I don't know where you would draw the line under "major", though. But everyone knows BoA, WF, and Chase are trash when it comes to savings rates. They don't do it.
In Europe, HSBC (which is comparable in size to Chase and BoA) has reliably high saving accounts rates. HSBC UK was offering 5% until recently, I believe.
Hell, Fidelity pays 235 bps on checking and 435 on money market, which you can have them programmatically move everything over a fixed dollar amount in your checking into [1].
Apparently, the problem is not that the money would be gone but that it’s just somewhere else because only BaaS middleman Synapse has access to the actual reconciliation how these funds distribute across individual fintech end users. According to the article, this is because of „very large bulk transfers“ which did not identify ultimate creditors. I am still puzzled how that can be. If end users top up their digital wallets, they typically send money by means of a real bank transfer to a client money account at a real bank. So at least at this initial point in time it was clear to the underlying banks who owned the money. Apparently, end users then spent money through user-facing fintech apps (I.e., „Yotta“) which is where the problem must have started as reconciliation of funds sat with Synapse only but not with the underlying banks…?
It would be great if someone with more background could comment to clarify as this case is potentially relevant to many other fintech / banking-as-a-service offerings out there.
I don't have more context than what's in the article but what it sounds like is they've lost access to the database that says $2000 from this pile of $10MM belong to John Doe, because the company that hired the devs who understood this stuff is bankrupt, and the involved parties can't seem to reach an arrangement to bring in a cleanup crew. I don't think any money is actually missing.
Ultimately a modern bank is just a software system pushing around the proverbial proto between some databases and other financial software systems.
> In the immediate aftermath of Synapse's bankruptcy, which happened after an exodus of its fintech clients, a court-appointed trustee found that up to $96 million of customer funds was missing. The mystery of where those funds are hasn't been solved, despite six months of court-mediated efforts between the four banks involved.
Personally I think the real question is why a robber that stole $500 from a bank teller drawer and anyone that helped them gets thrown in prison without any meaningful consideration of their circumstances while these besuited lowlifes get to go home to their families every night while they decide amongst themselves whether they can figure out who is responsible for destroying thousands of people’s lives.
> Personally I think the real question is why a robber that stole $500 from a bank teller drawer and anyone that helped them gets thrown in prison without any meaningful consideration of their circumstances
Because if you allow it, you'll have hundreds of these everyday. The law is there to "scare" others from doing it not punish the perpetrator. On the other hand, you don't have hundreds of fintech startups raising millions every day.
It makes no sense to throw someone in prison in this case unless they are a flight risk until their sentencing is complete.
I don't want to go out of my way to defend their incompetence, but you have to prove what happened. It's not fair to send a CEO to prison because a different insider independently embezzled funds and they lost the records.
> Seems like a rather large moral hazard if we don't
Based on what? The catastrophic failure rate is low. And if you’re sensitive to that risk, don’t bank with a firm that’s selling you on sticking it to the man or whatever.
Command responsibility applies here. CEOs get multiple times their average employee's pay because of their responsibility, which should include responsibility to know when stuff goes wrong.
In hindsight the fact that these neobanks can advertise their customers' funds are FDIC-insured is crazy. If I run a ponzi scheme but deposit my victims' money at Chase, does that mean I can correctly claim the funds are FDIC-insured?
I think the FDIC insurance is per account at a bank with a banking charter. Fintechs are typically given one account by a real bank
and so funds are commingled but also it is a single account so only 85k insuran ce even though the account might have 1000s customer funds commingled.
This is not true for fiduciary accounts, which are covered per principal. So FDIC coverage should extend to all customers if the account was properly declared.
However this apparently doesn’t protect you from the failure of the third party, which is what is unexpected. If you look at this bulletin the FDIC put out after the Synapse incident, they’re basically claiming they aren’t stepping in because a bank hasn’t failed. A fintech that isn’t the bank, but has records of what’s at the bank, failed.
Personally, I find the explanation to be pretty weak - what does pass through insurance even mean then? Does every fintech startup need to also directly be a bank - if so that’s a huge barrier to entry and basically gifts incumbents with regulatory capture. If the money is in an FDIC protected account, it should be safe. It does not make sense to me that they would step in for Silicon Valley Bank’s failure, but not in this situation.
One weird part of the situation is that it seems the underlying bank does not have records about each customer and their numbers. To me that seems negligent on the part of the underlying bank. Surely they knew about this arrangement of pass through insurance and the need to protect funds. They should have maintained separate accounts for each client of the third party service. Regardless of negligence it seems the FDIC is trying to make this record keeping a requirement:
https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
The fact that any bank would advertise "FDIC insured" is silly, as it conditions potential customers to look to the banks for this information. It would be better if folks were conditioned to consult only the FDIC themselves for this information.
Could you expand on why is it easily prosecutable?
I sense that it has something to do with lying in documents.
But hypothetically: if I write “no”. Proof of lying requires proof of terrorism. (At which point you did all the job of proving terorism, despite the document)
You clearly do not know a single real thing about America. America itself is a con job from to back, to to bottom, left to right. Between the reserve currency global fraud, the inflation money printing, the scam startups, the deficit spending and national debt fraud, the various banking and financial frauds, even our children are raised with fraudulent schemes with things like the “fundraising” through selling Girl Scout cookies and circulate bars. All the scamming online, in our professional lives, personal lives, or fake religious groups and political entities, is all just snake oil heritage and the rich plundering the country through a fraud based economy.
It’s something that most Europeans that come to America either are shocked by or fall prey to, because not only are laws tighter in Europe regarding fraudulent activities, but in many places of Western Europe, society is still relatively high trust and of good morals and ethics with little of the overt and blatant open scamming and lies you see in America on a daily basis to such a degree that most Americans cannot even see it.
A more apparent example of that is our stores in America that are always having a BIG BIG SALE of up to 80% OFF. When it’s just the same market prices claiming to be 80% discounted from some made up price.
If regulators don't act, then nothing will stop copycats from doing this again. The end result will be the loss of trust in new banks. The people that would benefit from this effect are established banks, so it may not be in the OG banks' interest to cooperate. I would be interested to hear a patio11 analysis of this situation.
FDIC insurance is why people trust banks. I'm still trying to figure out what Synapse was. Not a bank though. Whatever they were, clearly they shouldn't have been trusted.
But users never really saw Synapse. They saw Yotta, which was a YC backed fintech working with Evolve, a real FDIC bank.
I really don’t understand what purpose any of these companies had for savings accounts — why not just bank at Evolve?? That’s where I’m confused. This doesn’t even seem like high rates or other perks?
And evolve just had a huge data breach triggering many business clients to leave.
One of the big use cases for me was/is the easy movement of money cross currency. Even something that should be easy like getting an IBAN as a US citizen is a pain/expensive without companies like Wise.
Especially for savings. Using a fintech for day to day banking has its uses (I'm a customer of Revolut and N26) and they blow traditional banks out of the water in terms of features and usability (at one point my traditional bank was blocking "suspicious" card transactions from "abroad"... Ireland and Luxemburg, stuff like Amazon and Uber).
But savings are mostly fire and forget, unless you decide to play an active part which is not for everyone and most people shouldn't.
I'm hoping it shows up in Matt Levine's Money Stuff - this is the sort of area where I've seen patio11 defer to him before, though obviously my ideal world would be getting to read an analysis from each of them.
1) non-bank fintech put client's money in the bank
2) they told clients that money in the bank are covered by FDIC which is technically true
3) fintech moved money out of the bank
4) bank insurance doesn't apply because the bank didn't "lose" anything
At least this seems to match the Evolve's part of the story from the article. And Evolve is a real bank so they should have all the records to prove it. If so then it's a clear fraud by fintechs, but FDIC can't do much. Otherwise Evolve is lying and in this case FDIC can take over.
I wonder what is a reliable way to know if in the end your money is covered or not. Trusting what the contract tells you is evidently not enough. Having a "real" individual account number in a real bank? Not sure either, if intermediary can move the money out of your personal account then account insurance likely won't work either.
Money of that quantity doesn't just disappear unless someone wants it to. Why isn't the DoJ involved threatening criminal action to put people in jail?
Is this another failure of the US government to provide one of the most basic protection to its citizens? Normally the government should establish rules that prevent this sort of thing to happen.
This is a new problem created by the rise of very complex fintech companies using middlemen to handle transactions. The FDIC is proposing a new rule to require better record keeping to try to prevent issues like this in the future.
My first question is how the government could let the app/arrangement happen in the first place. I'm guessing they thought it was "just an extra layer before hitting the real bank," which is what I assumed everyone was thinking when they deposited their money.
When apparently it's "not quite", then I guess it's illegal?
> The mystery of where those funds are hasn’t been solved, despite six months of court-mediated efforts between the four banks involved. That’s mostly because the estate of Andreessen Horowitz-backed Synapse doesn’t have the money to hire an outside firm to perform a full reconciliation of its ledgers, according to Jelena McWilliams, the bankruptcy trustee.
Ok, so they can’t find $50m cause they don’t have any money? They still have $11m that they intend to pay customers back. Surely the customers are willing to sacrifice some of that to pay someone to look at the spreadsheets.
Also, that A16z isn’t willing to pay out of pocket for the reconciliation is a disgrace. Surely the bad PR is worth much more than the cost of the audit…
Huh? A month ago, the bankruptcy trustee for Synapse said that reconciliation was complete and funds would be returned by the end of the year. What happened?[1]
Oh. Note at the end: (Updates with quote from trustee’s report in last paragraph. A previous version of this story corrected the last paragraph to say a potential shortfall remains between the amount of money available for return to customers and what is recorded on Synapse’s ledgers.)
Never heard of yotta before. Upon seeing that the couple deposited $280k with them, I followed the accompanying link to their website. It was a horrifying experience.
It's worth noting that cash held in a Fidelity brokerage account is handled the same way, by being "swept" into a bank account held by Fidelity at an actual bank so Fidelity can claim it's FDIC insured. I guess if Fidelity folds there would be bigger problems than where the cash balance is, though...
Correct, Fidelity has a list of 25 Program Banks[1] of varying quality, so I prefer sweeps into a money market fund instead of a bank.
I also use Schwab _Bank_'s checking account instead of Fidelity's Cash Management Account for similar reasons. The latter's debit card is issued by PNC Bank and administered by BNY Mellon[2]. They are large institutions, but I have no wish to deal with the finger-pointing when something goes wrong. Whereas at Schwab, I know who to blame: Schwab.
This type of specialization or "deintegration" seen with neobanks in the name of innovation seems to be a common pattern used to skirt accountability, and it is weaponized against the average consumer's already inadequate rights and ability to recover damages.
The problem is that the FDIC isn’t stepping in because they claim they can only do so when there is a bank failure, not a failure at the third party. So they’re claiming that clients of the third party have to go through the bankruptcy proceedings, rather than just getting covered by the FDIC, whereas most clients are expecting the FDIC to protect funds in all situations not just a “bank failure”:
https://www.fdic.gov/consumer-resource-center/2024-06/bankin...
Another problem is that in some of these setups, the third parties are not managing separate accounts for each client at the underlying bank. So the underlying bank is not maintaining records that track each client’s separate funds. To me that seems odd and I would expect neobanks to track those numbers themselves but also for the underlying bank to do so. The FDIC is working on making that a hard requirement:
https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
Too easy, I recommend life in prison working as slave labour to pay off all damages with interest set to reasonable rate, say prevailing rate +10%. And this should also apply to all stock holders. Clearly it is time to do away with limited liability.
Heh, in real dystopia, terrorist groups pay the family of suicide bombers for their "sacrifice". In your dystopia, boards of failing/lying companies will employ suicide CEOs just before they get caught...
The linked website for Yotta is withyotta.com which looks like some sort of online gambling site? The slogan is "Play games. Win Big." Am I missing something? It doesn't look like something I'd trust to put any amount of money into.
Looking at archive.org for September 2023 [1] they claim an "average annual savings reward" of "~2.70%*". At a real major US bank, I was getting 4.65% in my savings account at this same time.
Reading the terms at the bottom of the page it says: "Please note that the approximate Average Annual Savings Reward of 2.70% is a statistical estimate based on the probabilities of matching numbers each night. The Annual Savings Reward will vary from member to member depending on one’s luck in the Daily Drawings and is subject to change in the future."
[1] https://web.archive.org/web/20230912164609/https://www.withy...
Yotta marketed itself as a "bank" where every time you deposited to savings you would get a free lotto ticket for the month based on how much you deposited. They did this by offering below average interest rates on savings then parking people's money in accounts at banks with higher interest rates than they paid out and pulling some of the difference into a prize pool. Over time (very quickly actually) to increase revenue they pivoted into more traditional gambling.
Notably, Yotta is neither a bank nor a payment processor. They are just an "app" front end. Yotta's processor went bankrupt and the fintech bank they were working with to hold the accounts now disputes the amount of money they actually are holding to the tune of ~$96M being missing. This will probably be in courts for several years while things are unwound, someone will go to jail for financial crimes, and a lot of people will never be made whole. Some people have called for the FDIC to step in, but the FDIC has helpfully pointed out that no FDIC insured account has defaulted which is the necessary condition for FDIC insurance to pay out.
The idea is that people will be more interested in saving with a low interest rate with the chance to win more than having the higher interest rate.
In Ireland the state runs this thing called prize bonds which is a similar idea https://www.statesavings.ie/help-support/help-articles/how-d...
“Play Games. Win Big.” seems to be their current website’s slogan. In your archive link the same text instead reads “Banking for Winners”, which helps explain why people would be putting their life savings into this thing. In the small text below, they did say “Yotta is a financial technology company, not a bank.”, but that was immediately followed by: “Banking services provided by Evolve Bank & Trust and Thread Bank; Members FDIC.”
And they weren’t lying about that. This isn’t some cryptocurrency rug pull. They really were operating under the regulated financial system, in concert with banks. It isn’t even a situation where someone stole the money, as far as anyone can tell.
Sure, perhaps customers should have avoided the company for independent reasons, like the bad interest rate or the risk of it being an outright scam. But it’s hard for me to blame them when the actual failure mode was completely different and unexpected.
The core issue seems to be that a company named Synapse was a middleman to a lot of fintech startups and spread money around various banks but didn't actually keep very accurate records of balances. Evolve bank noticed this and hired a fancy consulting firm named Ankura to reconcile 100 million transactions. But most of the money is still lost in the various banks that Synapse used. The core issue is why is it so hard to use Synapse's records to find where the money is? And the various banks that Synapse used should be able to work together to reconcile the money. I wonder if most the missing money was just embezzled.
> bad interest rate
That link shows 2.7% in Sept., 2023. It should have been more like 5%.
The yellow flag should have been the sketchy "win prizes" part of their offering that the article didn't really mention. What's this pseudo bank's innovation? A raffle?
I still agree that weren't actual signs of sloppy accounting customers should have seen, and as it really does look like customer funds were supposed to get deposited in an actual bank.
In finance, you should never assume incompetence over malice. It very rarely works out that way. Malicious incompetence maybe.
This is probably a rug pull in a system designed for money laundering. They can’t figure out where money came from or who it belonged to…. I don’t think that happened out of the blue using standard accounting practices.
By mixing non-bank money companies and traditional banking services, you can construct an effectively opaque and ultra efficient system to obfuscate the origins of funds, all without deviation in an obvious way from what looks like standard accounting. All of the best money laundering happens in plain sight within the banking industry through clever constructions. AML rules are just there to eliminate the competition.
My guess is that it was time to shut down and the fingerprints had to be burned. Maybe no customer money was stolen, but the data of who has what money and who it belonged to might be hopelessly obfuscated in the process of obfuscation of their primary activities.
This is not likely an example of sloppy accounting, but rather of very, very clever accounting and orchestrated fraud to make money disappear out of an otherwise well designed system of accounting. The real question is where did the fraud propagate out of? What was the exploit, what was the systemic vulnerability, and who exploited it?
There is a huge incentive in fintech to create “legitimate products“ where John Q. Public deposits funds that just happen to be very useful for money laundering when combined with some other, apparently unrelated activity or similar lever that only an insider knows how to pull. It works fundamentally like a cryptocurrency coin mixer, without the hassle or suspicious profile. Shifting burdens of documentation often have gaps where things can “get lost” and shell companies that act only as conduits and never hold funds can evaporate with little accountability. Often, “unknowing” accomplice banks are left holding the bag…but all you have to figure out is where to repatriate the money that people will come looking for, the flows you know no one is going to come asking about effectively never happened.
Meanwhile it’s very easy to take a margin of 10 percent or more of the flows. And they aren’t small flows. It’s a multibillion dollar market. The demand and the incentives are absolutely spectacular.
For the most part, these crimes are invisible to the public, very difficult to prosecute, and effectively impossible to garner the political support to even launch an investigation into, for reasons.
I hope the hapless victims at least get their money back some day.
I disagree with this previous premise: In finance, you should never assume incompetence over malice. It very rarely works out that way. Malicious incompetence maybe.
I suspect it's informed more by confirmation bias fed by the news cycle than actual facts. And Misty likely the rule of thumb featuring incompetence still holds.
I have very good reason to believe otherwise, but I do prefer your view of the world if given a choice. It’s a happier path to stay on until you find it no longer fits your experience.
Kinda like the billions of dollars that the DOD “can’t” account for.
You ever try to get the DOD to hand you a few million dollars? There’s a bit of paperwork involved.
Accounting is not hit or miss, and it’s not exactly an unexplored frontier. Its a pretty safe bet that when a well funded, fully staffed organization “can’t” account for some amount of money, it’s because someone along that path wanted it to be that way, or was negligent in such a way that it is equivalent to intent.
Whenever I've got a chance to make half the going interest rate on my money, I want it to be with some disruptive fintech bro startup with a silly name. That's just how I roll.
I watched some YouTube videos that said it was a bank app (sort of) before changing to gambling.
> At a real major US bank, I was getting 4.65% in my savings account at this same time.
Was that in a CD, or in an account with a big minimum? Most major banks did not offer such a rate in a generic mass market liquid savings product.
Marcus (Goldman Sachs) high yield savings was 4.50% until revenetly. EverBank is at 4.75% right now. These are normal savings accounts.
How does Everbank offer rates above the fed rate? Wealthfront offers good rates but they track the fed rate pretty closely.
Yes but I don’t perceive them as a “major US bank”. I was expecting that term to mean the largest banks for typical consumers like Bank of America or Wells Fargo or Chase. Everbank is small, and GS is mostly an investment bank rather than a retail bank.
> the largest banks for typical consumers like Bank of America or Wells Fargo or Chase
These banks are up front about not competing on rates.
Marcus, which is GS Bank, is certainly a retail product aimed at consumers.
Capital One, Discover, Ally, etc. were offering 4.35% at the peak. Not quite as good, but very decent for a savings account.
I don't know where you would draw the line under "major", though. But everyone knows BoA, WF, and Chase are trash when it comes to savings rates. They don't do it.
In Europe, HSBC (which is comparable in size to Chase and BoA) has reliably high saving accounts rates. HSBC UK was offering 5% until recently, I believe.
Hell, Fidelity pays 235 bps on checking and 435 on money market, which you can have them programmatically move everything over a fixed dollar amount in your checking into [1].
[1] https://www.fidelity.com/spend-save/fidelity-cash-management...
US Bank[1] which is the second oldest and fifth largest[2] US bank currently has 3.5% on their Money Market account which is basically an HYSA.
[1]: https://www.usbank.com/bank-accounts/savings-accounts/elite-...
[2]: https://en.wikipedia.org/wiki/U.S._Bancorp
Apparently, the problem is not that the money would be gone but that it’s just somewhere else because only BaaS middleman Synapse has access to the actual reconciliation how these funds distribute across individual fintech end users. According to the article, this is because of „very large bulk transfers“ which did not identify ultimate creditors. I am still puzzled how that can be. If end users top up their digital wallets, they typically send money by means of a real bank transfer to a client money account at a real bank. So at least at this initial point in time it was clear to the underlying banks who owned the money. Apparently, end users then spent money through user-facing fintech apps (I.e., „Yotta“) which is where the problem must have started as reconciliation of funds sat with Synapse only but not with the underlying banks…?
It would be great if someone with more background could comment to clarify as this case is potentially relevant to many other fintech / banking-as-a-service offerings out there.
I don't have more context than what's in the article but what it sounds like is they've lost access to the database that says $2000 from this pile of $10MM belong to John Doe, because the company that hired the devs who understood this stuff is bankrupt, and the involved parties can't seem to reach an arrangement to bring in a cleanup crew. I don't think any money is actually missing.
Ultimately a modern bank is just a software system pushing around the proverbial proto between some databases and other financial software systems.
> In the immediate aftermath of Synapse's bankruptcy, which happened after an exodus of its fintech clients, a court-appointed trustee found that up to $96 million of customer funds was missing. The mystery of where those funds are hasn't been solved, despite six months of court-mediated efforts between the four banks involved.
This is the real question.
Personally I think the real question is why a robber that stole $500 from a bank teller drawer and anyone that helped them gets thrown in prison without any meaningful consideration of their circumstances while these besuited lowlifes get to go home to their families every night while they decide amongst themselves whether they can figure out who is responsible for destroying thousands of people’s lives.
> Personally I think the real question is why a robber that stole $500 from a bank teller drawer and anyone that helped them gets thrown in prison without any meaningful consideration of their circumstances
Because if you allow it, you'll have hundreds of these everyday. The law is there to "scare" others from doing it not punish the perpetrator. On the other hand, you don't have hundreds of fintech startups raising millions every day.
It makes no sense to throw someone in prison in this case unless they are a flight risk until their sentencing is complete.
For $96 million, I would be a flight risk.
I don't want to go out of my way to defend their incompetence, but you have to prove what happened. It's not fair to send a CEO to prison because a different insider independently embezzled funds and they lost the records.
Seems like a rather large moral hazard if we don't?
At some point the courts should be able to say "ok fine you were the directors responsible for the company you're going to prison n years, sorry."
Bet we'd see a lot more documentation suddenly appear.
> Seems like a rather large moral hazard if we don't
Based on what? The catastrophic failure rate is low. And if you’re sensitive to that risk, don’t bank with a firm that’s selling you on sticking it to the man or whatever.
I'd bet 95% of fintech startups are just walking moral hazards to begin with.
Command responsibility applies here. CEOs get multiple times their average employee's pay because of their responsibility, which should include responsibility to know when stuff goes wrong.
In hindsight the fact that these neobanks can advertise their customers' funds are FDIC-insured is crazy. If I run a ponzi scheme but deposit my victims' money at Chase, does that mean I can correctly claim the funds are FDIC-insured?
I think the FDIC insurance is per account at a bank with a banking charter. Fintechs are typically given one account by a real bank and so funds are commingled but also it is a single account so only 85k insuran ce even though the account might have 1000s customer funds commingled.
This is not true for fiduciary accounts, which are covered per principal. So FDIC coverage should extend to all customers if the account was properly declared.
This isn’t accurate. A fintech’s own money (as opposed to customer funds) may have low insurance. But if set up properly, those customer funds can have pass through FDIC insurance. See https://www.fdic.gov/financial-institution-employees-guide-d...
However this apparently doesn’t protect you from the failure of the third party, which is what is unexpected. If you look at this bulletin the FDIC put out after the Synapse incident, they’re basically claiming they aren’t stepping in because a bank hasn’t failed. A fintech that isn’t the bank, but has records of what’s at the bank, failed.
https://www.fdic.gov/consumer-resource-center/2024-06/bankin...
Personally, I find the explanation to be pretty weak - what does pass through insurance even mean then? Does every fintech startup need to also directly be a bank - if so that’s a huge barrier to entry and basically gifts incumbents with regulatory capture. If the money is in an FDIC protected account, it should be safe. It does not make sense to me that they would step in for Silicon Valley Bank’s failure, but not in this situation.
One weird part of the situation is that it seems the underlying bank does not have records about each customer and their numbers. To me that seems negligent on the part of the underlying bank. Surely they knew about this arrangement of pass through insurance and the need to protect funds. They should have maintained separate accounts for each client of the third party service. Regardless of negligence it seems the FDIC is trying to make this record keeping a requirement: https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
That's batshit insane.
The whole point of banking that people have forgotten is trust.
Large banks have gone to great lengths to teach people that banks can never be trusted
There's generally nothing stopping scammers from lying in ads. Enforcement is only done afterwards.
The fact that any bank would advertise "FDIC insured" is silly, as it conditions potential customers to look to the banks for this information. It would be better if folks were conditioned to consult only the FDIC themselves for this information.
It serves the same purpose as asking customers "are you a terrorist" -- it creates an easily prosecutable offence.
Could you expand on why is it easily prosecutable?
I sense that it has something to do with lying in documents.
But hypothetically: if I write “no”. Proof of lying requires proof of terrorism. (At which point you did all the job of proving terorism, despite the document)
If you ask it online then I guess it counts as wire fraud which may be easier to prosecute.
How is this possible in USA?
You clearly do not know a single real thing about America. America itself is a con job from to back, to to bottom, left to right. Between the reserve currency global fraud, the inflation money printing, the scam startups, the deficit spending and national debt fraud, the various banking and financial frauds, even our children are raised with fraudulent schemes with things like the “fundraising” through selling Girl Scout cookies and circulate bars. All the scamming online, in our professional lives, personal lives, or fake religious groups and political entities, is all just snake oil heritage and the rich plundering the country through a fraud based economy.
It’s something that most Europeans that come to America either are shocked by or fall prey to, because not only are laws tighter in Europe regarding fraudulent activities, but in many places of Western Europe, society is still relatively high trust and of good morals and ethics with little of the overt and blatant open scamming and lies you see in America on a daily basis to such a degree that most Americans cannot even see it.
A more apparent example of that is our stores in America that are always having a BIG BIG SALE of up to 80% OFF. When it’s just the same market prices claiming to be 80% discounted from some made up price.
Decades of deregulation. More to come.
What specific regulation would have prevented this? Or is this just a knee jerk response against "deregulation"?
Read "A decade of armageddon" or some other good books on how the US markets and banks actually work..
TLDR: financial crime pays in the US.
If regulators don't act, then nothing will stop copycats from doing this again. The end result will be the loss of trust in new banks. The people that would benefit from this effect are established banks, so it may not be in the OG banks' interest to cooperate. I would be interested to hear a patio11 analysis of this situation.
> The end result will be the loss of trust in new banks.
The problem is in part that these fintech services are not in fact banks.
Well there are two appropriate action--
Jail time to the CEO of that compary for fraud (because it wasn't FDIC insured) or full reimbursement of all creditors.
I'm okay with either, but if neither of those happens then it's a failing system.
FDIC insurance is why people trust banks. I'm still trying to figure out what Synapse was. Not a bank though. Whatever they were, clearly they shouldn't have been trusted.
But users never really saw Synapse. They saw Yotta, which was a YC backed fintech working with Evolve, a real FDIC bank.
I really don’t understand what purpose any of these companies had for savings accounts — why not just bank at Evolve?? That’s where I’m confused. This doesn’t even seem like high rates or other perks?
And evolve just had a huge data breach triggering many business clients to leave.
One of the big use cases for me was/is the easy movement of money cross currency. Even something that should be easy like getting an IBAN as a US citizen is a pain/expensive without companies like Wise.
Especially for savings. Using a fintech for day to day banking has its uses (I'm a customer of Revolut and N26) and they blow traditional banks out of the water in terms of features and usability (at one point my traditional bank was blocking "suspicious" card transactions from "abroad"... Ireland and Luxemburg, stuff like Amazon and Uber).
But savings are mostly fire and forget, unless you decide to play an active part which is not for everyone and most people shouldn't.
FWIW they are acting, these things just take a while, current phase of gathering comments ends December 2nd https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
I'm hoping it shows up in Matt Levine's Money Stuff - this is the sort of area where I've seen patio11 defer to him before, though obviously my ideal world would be getting to read an analysis from each of them.
>The end result will be the loss of trust in new banks. The people that would benefit from this effect are established banks
Distrusting new banks in favor of old banks is generally a good idea.
Much like with cybersecurity incidents. Regulators haven’t acted and they keep happening.
Did I get this right:
1) non-bank fintech put client's money in the bank
2) they told clients that money in the bank are covered by FDIC which is technically true
3) fintech moved money out of the bank
4) bank insurance doesn't apply because the bank didn't "lose" anything
At least this seems to match the Evolve's part of the story from the article. And Evolve is a real bank so they should have all the records to prove it. If so then it's a clear fraud by fintechs, but FDIC can't do much. Otherwise Evolve is lying and in this case FDIC can take over.
I wonder what is a reliable way to know if in the end your money is covered or not. Trusting what the contract tells you is evidently not enough. Having a "real" individual account number in a real bank? Not sure either, if intermediary can move the money out of your personal account then account insurance likely won't work either.
Kinda feels like Synapse was really just a fancy money laundering operation.
Money of that quantity doesn't just disappear unless someone wants it to. Why isn't the DoJ involved threatening criminal action to put people in jail?
Because they only stole from poor people who can't lobby. The article even quotes someone saying as much.
Because rich people got richer, which is always ok
lately there has been an increase in scammy yc startups
Is this another failure of the US government to provide one of the most basic protection to its citizens? Normally the government should establish rules that prevent this sort of thing to happen.
This is a new problem created by the rise of very complex fintech companies using middlemen to handle transactions. The FDIC is proposing a new rule to require better record keeping to try to prevent issues like this in the future.
https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
Rules don't stop all fraud, justike laws don't stop all crime.
My first question is how the government could let the app/arrangement happen in the first place. I'm guessing they thought it was "just an extra layer before hitting the real bank," which is what I assumed everyone was thinking when they deposited their money.
When apparently it's "not quite", then I guess it's illegal?
> The mystery of where those funds are hasn’t been solved, despite six months of court-mediated efforts between the four banks involved. That’s mostly because the estate of Andreessen Horowitz-backed Synapse doesn’t have the money to hire an outside firm to perform a full reconciliation of its ledgers, according to Jelena McWilliams, the bankruptcy trustee.
Ok, so they can’t find $50m cause they don’t have any money? They still have $11m that they intend to pay customers back. Surely the customers are willing to sacrifice some of that to pay someone to look at the spreadsheets.
Also, that A16z isn’t willing to pay out of pocket for the reconciliation is a disgrace. Surely the bad PR is worth much more than the cost of the audit…
Yes. Marc Andreessen is worth about $2 billion. he should be personally paying for the audit.
Huh? A month ago, the bankruptcy trustee for Synapse said that reconciliation was complete and funds would be returned by the end of the year. What happened?[1]
Oh. Note at the end: (Updates with quote from trustee’s report in last paragraph. A previous version of this story corrected the last paragraph to say a potential shortfall remains between the amount of money available for return to customers and what is recorded on Synapse’s ledgers.)
[1] https://www.bloomberg.com/news/articles/2024-10-23/funds-fro...
Never heard of yotta before. Upon seeing that the couple deposited $280k with them, I followed the accompanying link to their website. It was a horrifying experience.
It seems like they were branded much more conservatively and bankish at the point where said couple would have picked them.
The site *now* ... yeah. Ick.
You are right. I didn't say it in my comment but I was judging the couple hardly but looks like I had made a mistake.
This is the oldest snapshot that the wayback machine has of it: https://web.archive.org/web/20200630201639/https://www.withy...
Proudly displaying the Y Combinator logo right there on the home page.
Uh-oh, this really shakes my confidence in fintech neobanks like Mercury, Wise, Revolut and the lot.
It's worth noting that cash held in a Fidelity brokerage account is handled the same way, by being "swept" into a bank account held by Fidelity at an actual bank so Fidelity can claim it's FDIC insured. I guess if Fidelity folds there would be bigger problems than where the cash balance is, though...
Correct, Fidelity has a list of 25 Program Banks[1] of varying quality, so I prefer sweeps into a money market fund instead of a bank.
I also use Schwab _Bank_'s checking account instead of Fidelity's Cash Management Account for similar reasons. The latter's debit card is issued by PNC Bank and administered by BNY Mellon[2]. They are large institutions, but I have no wish to deal with the finger-pointing when something goes wrong. Whereas at Schwab, I know who to blame: Schwab.
This type of specialization or "deintegration" seen with neobanks in the name of innovation seems to be a common pattern used to skirt accountability, and it is weaponized against the average consumer's already inadequate rights and ability to recover damages.
[1] https://accountopening.fidelity.com/ftgw/aong/aongapp/fdicBa... [2] https://www.fidelity.com/cash-management/help-center/debit-c...
I've toyed with a couple neobanks and eventually decided the uncertainty and risk was not worth it. I'll gladly stick with Chase and AmEx.
Neobanks and other third parties can legitimately have pass through FDIC insurance: https://www.fdic.gov/financial-institution-employees-guide-d...
The problem is that the FDIC isn’t stepping in because they claim they can only do so when there is a bank failure, not a failure at the third party. So they’re claiming that clients of the third party have to go through the bankruptcy proceedings, rather than just getting covered by the FDIC, whereas most clients are expecting the FDIC to protect funds in all situations not just a “bank failure”: https://www.fdic.gov/consumer-resource-center/2024-06/bankin...
Another problem is that in some of these setups, the third parties are not managing separate accounts for each client at the underlying bank. So the underlying bank is not maintaining records that track each client’s separate funds. To me that seems odd and I would expect neobanks to track those numbers themselves but also for the underlying bank to do so. The FDIC is working on making that a hard requirement: https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
Revolut are a real bank, at least in Europe, and all funds in it are protected by the relevant country's banking fund.
Igiving away prizes looks pretty much like a ponzi scheme to me.
It's not. It's a scheme that arose out of behavioral economics.
https://en.wikipedia.org/wiki/Prize-linked_savings_account
U
Trust me, bro.
We really oughta institute the death penalty for execs involved in shit like this.
Surely you'd also support the death penalty for developers that cause multi-million dollar bugs?
Too easy, I recommend life in prison working as slave labour to pay off all damages with interest set to reasonable rate, say prevailing rate +10%. And this should also apply to all stock holders. Clearly it is time to do away with limited liability.
don't word it like that! it should be a punishment that sufficiently discourages repetition
Skin in the game prevents a lot of problems.
Heh, in real dystopia, terrorist groups pay the family of suicide bombers for their "sacrifice". In your dystopia, boards of failing/lying companies will employ suicide CEOs just before they get caught...
"This was the story of Howard Beale: the first known instance of a man who was killed because he had lousy ratings."