Fintech Mercury is ending its relationship with partner bank Evolve Bank & Trust and will migrate its customers to the fintech’s other partner banks. 

Mercury is working with Evolve to ensure a smooth transition for the small percentage of customers who have accounts with Evolve, a Mercury spokesperson said.

Mercury offers bank accounts and payment options through Choice Financial Group, Column and Patriot Bank. 

“Since Mercury’s early days, Mercury and Evolve have worked together to support innovation in banking for our customers. We appreciate Evolve’s partnership, and are committed to ensuring a seamless experience for our customers,” the Mercury spokesperson said.

Evolve, for its part, said that though it was disappointed to see “valued partners depart,” it respects their decision and is a “well-capitalized” Federal Deposit Insurance Corp.-insured financial institution.

“Evolve continues to enjoy very successful and strong business relationships with many fintech partners,” an Evolve spokesperson said.

Evolve was the partner bank of the bankrupt middleware firm Synapse, which declared bankruptcy last April. 

The Federal Reserve issued an enforcement action against Evolve in June, citing deficiencies in the Memphis, Tennessee-based lender’s anti-money laundering, risk management and consumer compliance operations. The central bank alleged Evolve “fail[ed] to have in place an effective risk management framework” for its fintech partnerships.

Recently, another Evolve partner, Dave, announced a new partnership with Coastal Community Bank. The fintech plans to eventually drop Evolve as a bank partner, Bloomberg reported.

“The decision by Dave and Mercury to sever their relationship with Evolve Bank & Trust speaks to the need for fintech-bank partnerships to align on both risk management practices and the operational needs of both institutions in the collaboration,” Dan Hartman, of counsel at law firm Nutter told Banking Dive, adding that banking fintech partnerships must practice due diligence around compliance and risk management to maintain customer trust and operational stability.

The Fed said Synapse’s bankruptcy had nothing to do with the enforcement action issued against Evolve. However, Dave asserted that Synapse's bankruptcy disrupted fintech customers' access to their funds at Synapse's partner banks, including Evolve, for several months.

“We currently rely on a single bank partner, and if our present or any future key banking relationships are terminated and we are not able to secure or successfully migrate client portfolios to a new bank partner or partners, or our bank partner becomes subject to regulatory restrictions or other operational disruptions, our business would be adversely affected,” Dave noted in a filing with the Securities and Exchange Commission.

Mercury highlighted the importance of a multi-bank strategy since it “provides redundancy, resiliency, and flexibility to serve companies at various stages of growth,” the spokesperson for the San Francisco-based fintech noted.

Mercury customer rollover will be completed in batches over months, but they will have uninterrupted access to the fintech’s platform during the process, the company said.

Mercury customers with accounts at Evolve will receive instructions via in-app notifications and emails, when it’s time to start the transition process outlining the necessary steps to complete the process, including resubmitting know-your-customer information for onboarding with a different Mercury partner bank.

After the switch, customers might see enhancements in their Mercury service, like faster ACH and wire transfers and the ability to accept wires in foreign currencies.

Evolve said the loss of the Mercury partnership would not interfere with its ongoing derisking plan, which began over a year ago.

“As our Open Banking clients are aware, this plan has also resulted in a more rigorous onboarding process for new customers and enhanced compliance oversight measures across the board,” the Evolve spokesperson said.

“Given Evolve’s recent regulatory challenges and management changes, it isn’t surprising that some of its fintech clients are electing to move their business to alternative partner banks - while others are sticking with Evolve,” Brian Graham, a partner at Klaros Group said in an email. “That’s a normal dynamic when a partner bank faces significant regulatory pressure and also, in this case, some bad PR.”

Graham said the issue “seems idiosyncratic, tied to the specifics of the relationship between Evolve and these fintechs,” rather than indicating broader industry problems. 

However, the main takeaway is that fintechs and partner banks should prioritize contingency planning for potential partner failures or exits, Graham said.