Dive Brief:

• Evolve Bank & Trust said Saturday it is preparing to return funds held at the bank to the end users affected by the bankruptcy of fintech Synapse.
• The Memphis, Tennessee-based bank said it will provide more information, beginning Wednesday, at reconciliationbyevolve.com, where it will share an expected timeline for the return of funds. End users will also be sent an email Wednesday, Evolve said.
• Customers who are owed funds will be asked to choose a payment method Nov. 4, with payments beginning “shortly thereafter,” Evolve said.

Dive Insight:

Evolve, which is holding about $46 million belonging to Synapse end users, has hired Rust Consulting to act as administrator in disbursing the funds, according to Saturday’s release. 

The website that goes live Wednesday will include more information on how Rust will distribute the funds.

“Evolve has been deeply committed to the reconciliation of Synapse Brokerage end-user funds since we identified significant irregularities in end-user balances reported by Synapse,” Evolve’s founder, Scot Lenoir, said in the release. 

Since the Synapse fallout began in April, it’s affected a number of consumer-facing fintechs, including Copper, Yotta, Juno and Mercury. Evolve and Synapse couldn’t agree on which company held customer funds. 

The $46 million Evolve holds is related to the bank’s payment processing activities for Synapse’s end users, after their fintech platforms’ migration from Evolve to Synapse in late 2023, the bank said in a recent update on its website.

Evolve is holding an additional $35.3 million “in reserve funds that it will distribute to end users if the reconciliation determines that such distribution is appropriate,” the bank said in a Sept. 24 update. 

Evolve has said it identified “significant irregularities” in Synapse’s ledgers that suggested account balances were “materially inaccurate,” which is why the bank has worked with consulting firm Ankura to sort through the “complex” reconciliation process. 

Ankura has been working to determine which Synapse end users have funds at Evolve, and how much each is owed, Evolve said last month.

“First and foremost, we are grateful to the end users for their patience and understanding as we worked through millions of transactional records in the reconciliation process,” Lenoir said in Saturday’s release. 

In June, a group of senators prodded Synapse’s partners and investors to return the millions of dollars in customer funds that’s been inaccessible amid Synapse’s bankruptcy proceedings. Millions of consumers with close to $160 million in funds have been unable to access their money in the wake of the middleware provider’s collapse.

In September, Yotta Technologies sued Evolve, its bank partner, accusing the lender of misappropriating customer funds. Synapse acted as an intermediary between Evolve and Yotta.  

In Saturday’s release, Evolve said it had reached a “reconciliation milestone,” without providing further details. A spokesperson for the bank declined to comment beyond the release. 

Lenoir also noted the bank has worked with investment bank B. Riley, which helped Evolve collect data “necessary to perform this reconciliation.” 

Rust will validate end users’ identity and account information, to ensure funds are distributed accurately, Evolve said.

In the wake of the debacle, the Federal Deposit Insurance Corp. has proposed a rule that would require banks to bolster recordkeeping requirements for the fintechs with which they partner, and ensure timely access to customer funds if a fintech fails.

Evolve has faced a number of hurdles this year. The bank was hit with a Federal Reserve enforcement action in June, over shortcomings in the lender’s anti-money laundering, risk management and consumer compliance programs. The Fed noted the enforcement action was independent of Synapse’s bankruptcy proceedings.

Later that month, Evolve was involved in a breach by a cybercriminal organization, with its customer data and personal information landing on the dark web.