Amid a turbulent time in the banking-as-a-service sector, fintech Synapse has forged a deal with TabaPay, the money movement platform announced Friday.
TabaPay has put forward a purchase price of $9.7 million to acquire the assets of Synapse, according to the agreement. The deal is pending bankruptcy court approval, Lindsay Davis, TabaPay’s head of marketing and strategy, told Banking Dive. Synapse’s brokerage, lending and card issuing units will enhance the existing services that TabaPay currently offers its clients, she added.
TabaPay processes over a million transactions daily on behalf of over 2,500 clients in the U.S. and Canada, according to the company.
“Our ability [is] to come in and acquire the assets as well as make some of the creditors whole in this transaction, should it be approved by the bankruptcy court, all of which is, of course, pending for the next 30 days,” Davis said. “[Synapse] have built sound technology businesses, and we'd like to be able to acquire those to be able to add to our arsenal of payments today.”
Synapse, an embedded finance platform, applied for Chapter 11 bankruptcy on Monday, listing around 50-99 creditors, estimated assets at roughly $10,000,001 - $50 million, and estimated liabilities at around $10,000,001 - $50 million.
Synapse’s creditors include Amazon Web Services, Evolve Bank & Trust, Financial Technology Association, First Horizon Bank, Fiserv, Lineage Bank, Mastercard, Mercury, Trulioo, Yotta and TabaPay.
“We signed a deal with TabaPay and then filed for chap 11 as that was the buyer preference to be able to do this deal free and clear. We would not have done chap 11 otherwise,” Synapse CEO Sankaet Pathak told Banking Dive via LinkedIn messages.
TabaPay was in talks with Synapse for a potential deal for around a year before extending the offer last week, Rodney Robinson, co-founder and CEO of TabaPay, told Fintech Business Weekly.
“The Synapse assets are a great and natural fit to our existing services to grow our offerings in tandem with providing continuity to Synapse clients and banks,” Robinson said in a statement Friday.
Once the deal gets the green light, leveraging TabaPay’s platform, Synapse’s customers can benefit from an ecosystem of 15 bank partners, 16 network connections, over 2,500 existing clients and the domain expertise of the combined team, Pathak said in a social media post.
“The Synapse team will maintain its cohesion operationally as part of ensuring there are no immediate changes in operational processes or to your business model,” Pathak wrote. “Our ultimate goal is to seamlessly integrate, operating as a unified financial infrastructure platform and delivering unparalleled products to our collective customer bases.”
TabaPay, for its part, plans to hire Synapse’s staff to maintain operations of the existing business and ensure a smooth transition to the new platform, Davis noted.
“Our talent team is actively assessing that right now,” Davis said. “Those employees, if they choose to…they have a home, but again, they're at-will employees, and some probably have jumped ship in the past, [when] they already had their own round of layoffs in previous iterations.”
Problems Synapse faced
Synapse laid off 86 people or roughly 40% of its workforce in October. Last June, Pathak said in a blog post that 18% of its staff were culled due to the impact of the “current macroeconomic conditions” over its anticipated growth.
Apart from the economic headwinds, the BaaS startup has faced a $30 million arbitration case from its former partner, Mercury, when the latter decided to offload its intermediary Synapse and work directly with Mercury’s banking partner, Evolve Bank & Trust.
Pathak in a blog post shared the court document alleging Synapse was in a “financial freefall,” owing approximately $14 million to other customers, excluding Mercury.
He has blamed Mercury for interfering with the TabaPay deal on X, formerly Twitter.
“To set the record straight- our goal is to be acquired by Tabapay, chap 11 is the vehicle we are using to consummate the transaction given another friend of Sheel (Mercury) has been torturously interfering with the process,” Pathak wrote.
Bank-fintech partnership woes
Synapse’s bankruptcy filing comes amid a crisis in the BaaS space, which has been subject to regulatory scrutiny, leading banks to offload their fintech partners and move away from BaaS.
Several banks offering BaaS, including Blue Ridge Bank, Cross River Bank, Lineage Bank, Piermont Bank and Sutton Bank, have received consent orders in recent months over compliance and anti-money laundering flaws in their partnerships with fintechs.
Lineage partnered with Synapse to provide BaaS solutions to its customers and claimed to “tap into the market with great success” due to its fintech partnerships.
Brandon Oliver, principal at BankTech Ventures, an investment fund focused on investing in early-stage tech companies, said the financial services industry has seen an unprecedented rate of change in recent years, mostly due to the collaboration of banking and fintech leaders and the macroeconomic reactions related to banking worldwide.
“That speed of change was required and has resulted in faster deposit growth, niche lending opportunities, back office automation plays and a major uptick in third party vendor collaborations. Our regulatory framework around banking was not set up to handle this speed and therefore left a lot of gray area in how this pace of change should be handled,” he told Banking Dive via email.
One of the best ways to avoid being in regulatory crosshairs: audit a firm’s third-party vendors; otherwise the bank’s regulator will be sure to find any flaws, he said.
“Understand what your regulators need to see from these fintechs in order for them to give their seal of approval,” Oliver noted. “We can start to see what these expectations are through some of the consent orders that have already been sent out. We can start to form a benchmark of compliance that should only become more enhanced over time as all parties are further educated on what these partnerships can look like in the future.”
