Money movement platform TabaPay has called off its acquisition of banking-as-a-service startup Synapse, TabaPay said Thursday.
TabaPay sent a termination notice of the purchase agreement to Synapse on Thursday “based on failure to meet the purchase agreement closing conditions,” a TabaPay spokesperson told Banking Dive.
The closing conditions required Evolve Bank & Trust, Synapse’s banking partner, to fully fund the “for benefit of” accounts, but the bank failed to do so, Synapse CEO Sankaet Pathak told Banking Dive via LinkedIn message.
The bank had communicated that it would fund its FBO accounts as required by the parties' settlement agreement, but it continued to request extensions to obtain Mercury's buy-in.
Fintech Mercury was Synapse’s former partner, but Mercury decided to offload the intermediary BaaS startup and work directly with its banking partner, Evolve.
However, a spokesperson for Evolve emailed Banking Dive saying that its partnership with Mercury was strong and collaborative and that it is not seeking "buy-in" from the neobank.
“Evolve was not party to TabaPay’s agreement with Synapse, and we did not have closing conditions to meet. We did have a settlement agreement with Synapse that had a funding condition. Evolve satisfied that condition,” the Evolve spokesperson added.
The night before the bankruptcy court hearing on Thursday, Pathak said, “[Evolve] informed Synapse and TabaPay that they had fully funded the accounts — while they have not. Given that open issue, [T]aba is unable to close the transaction.”
Pathak believes TabaPay still wants to acquire Synapse if the Evolve issue were to be resolved, but said, “I have no faith that the Evolve issue would be resolved.”
However, in a blog post Thursday, Pathak said Mercury continued to use Synapse services and program accounts at Evolve after telling the public that Mercury’s “migration was complete.”
Mercury, for its part, said that it was completely off Synapse services by last October and followed the migration process outlined by Evolve in every step, adding that all customer funds were accounted for and safe.
“We have thoroughly investigated Synapse’s claims from the moment they were brought to our attention in March 2024 – six months after we migrated off of Synapse – and are confident that they have no merit and all customer funds are accounted for,” a Mercury spokesperson told Banking Dive in an email.
Founded in 2014 by Bryan Keltner and Pathak, Synapse is an embedded finance platform that enables banks and fintechs to develop financial services for their clients.
Mercury sued Synapse in a $30 million arbitration case alleging that Synapse withheld a significant amount of Mercury revenue in violation of their contract. Pathak alleges that when Mercury and Evolve were winding down their business with Synapse, Mercury moved nearly $49.6 million more while migrating away from the Synapse ecosystem into the neobank’s new general ledger account with Evolve.
Mercury refuted the claims, saying that Synapse came up with false allegations and counterclaims against the neobank following the lawsuit.
“Most recently, in March 2024, months after Mercury transitioned its customers off Synapse, Synapse asserted that an indeterminate number of Mercury customer FBO accounts were allegedly overdrawn. Despite Mercury’s many attempts to investigate their claims, Synapse was not able to produce any data that verified their claim,” the Mercury spokesperson said.
Background of the deal
TabaPay announced in April that it had proposed a $9.7 million purchase price to acquire Synapse's assets, which was pending bankruptcy court approval. TabaPay processes some 1 million transactions daily on behalf of about 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,” Lindsay Davis, TabaPay’s head of marketing and strategy, told Banking Dive last month. Synapse “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 applied for Chapter 11 bankruptcy last month, listing 50 to 99 creditors, estimated assets at roughly $10,000,001 to $50 million, and estimated liabilities at around $10,000,001 to $50 million.
“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,” Pathak told Banking Dive at the time.
The deal presented the potential for Synapse’s customers to 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 last month.
TabaPay had planned to hire Synapse’s staff to maintain operations of the existing business and ensure a smooth transition to the new platform, Davis noted at the time.
Synapse has encountered economic and regulatory headwinds for months, as the BaaS space has been subject to more regulatory scrutiny, with regulators paying particular attention to bank-fintech partnerships. In February, Lineage Bank entered a consent order with the Federal Deposit Insurance Corp. related to its financial technology partnerships; the bank was required to offload some of its fintech partners. Lineage was one of Synapse’s partners offering BaaS solutions to its customers.
Last October, Synapse laid off 86 people, or roughly 40% of its workforce. Last June, Pathak said in a blog post that 18% of the company’s staff were culled due to the impact of the “current macroeconomic conditions” on its anticipated growth.
