Is there a risk to depositors if Raisin gets into difficulty?

[Brendan Burgess]

In the U.S., an intermediary called Synapse went into liquidation and depositors seem to be having difficulty in getting their money back. Likewise, the banks who hold the deposits are not sure who owns what.

Abrupt shutdown of financial middleman Synapse has frozen thousands of Americans' deposits

The bank accounts of tens of thousands of U.S. businesses and consumers have been frozen in the aftermath of the shutdown and bankruptcy of financial technology company Synapse.

apnews.com

NEW YORK (AP) — The bank accounts of tens of thousands of U.S. businesses and consumers have been frozen in the aftermath of the abrupt shutdown and bankruptcy of financial technology company Synapse, which acts as a middleman between financial technology companies and banks.

Synapse filed for Chapter 11 bankruptcy protection in April and has shut down its services to some of its fintech or bank partners, including Evolve Bank & Trust. That has caused disruptions for customers of Synapse’s partners, leading to accounts being frozen or showing funds not existing at all.

Synapse’s shutdown has “needlessly jeopardized end users by hindering our ability to verify transactions, confirm end user balances, and comply with applicable law,” said Memphis-based https://www.getevolved.com/about/evolve-responds-to-fridays-court-hearing/ (Evolve in a statement last week). Because Evolve is a bank and is required to comply with banking laws, it has to make sure all customer deposits are accounted for to the penny, which may take time.

 

[Brendan Burgess]

That sounds very like the business model of Raisin.

 

[Brendan Burgess]

Synapse Trustee McWilliams Details New Challenges in Latest Status Report

Trustee Jelena McWilliams reported progress in recovering and distributing Synapse customer funds but highlighted significant challenges.

www.pymnts.com

It’s one step up and two steps back in the case of Synapse Financial’s bankruptcy, with the court-appointed trustee reporting progress Friday (June 21) in recovering and distributing customer funds. However, serious reconciliation challenges remain, according to the latest status report in the case.

Trustee Jelena McWilliams told the Central California Bankruptcy Court that partner banks have distributed most funds held in demand deposit accounts (DDAs) to end users. However, reconciling and returning funds held in more complex “for benefit of” (FBO) accounts has proven difficult due to discrepancies in Synapse’s records and a potential shortfall of $65 million to $96 million.

“The impact of Synapse’s bankruptcy on end-users has been devastating,” McWilliams wrote in a letter to federal regulators included in the court filing. “I understand that, without these funds, many end-users are unable to pay for basic living expenses and food.”

Evolve Bank & Trust, one of the key partner banks in the Synapse ecosystem, has made significant progress in distributing funds but also faces substantial challenges, according to the trustee’s report and a separate statement from Evolve included in the filing.

 

[Senben19]

But the banks know exactly who owns the funds, unlike the above. Theres no doubt about who owns what.

 

[Brendan Burgess]

But the banks know exactly who owns the funds, unlike the above. Theres no doubt about who owns what.

That is good. So your money never goes near Raisin?

You transfer it directly to Nordax or whichever partner bank it is?

Brendan

 

[Senben19]

No you transfer to raisin who forward it to partner bank.

 

[tomdublin]

You transfer it to your Raisin account which is a proper bank account with all the protections under German law. Hypothetically, what could go wrong is that Raisin pretends to forward the money to a partner bank but doesn't (i.e. sending out fictitious bank opening confirmations, etc) but I assume they are being audited. Might be useful to know more about the auditing process and who is liable if that goes wrong.

 

[Lightning]

Synapse and Raisin are totally different.

Synapse is not a bank. Raisin is a bank.

Synapse did not have deposit protection by-itself (but their partner banks do). Raisin has deposit protection by-itself and with the partner banks.

Synapse held money in pooled accounts across-banks. Raisin holds money in segregated client money accounts.

Synapse looks like a giant reconciliation mess but the money seems to be there.