The Fate of Your Funds in the Event of Your Fintech Company’s Collapse

In 2024, the collapse of Synapse Financial Technologies Inc., a fintech company backed by Andreessen Horowitz, left over 100,000 Americans locked out of their accounts with more than a quarter of a billion dollars in deposits. This incident shed light on the alarming truth that customers’ money may not be as protected as they assumed when using fintech services.

The aftermath of the Synapse collapse revealed that up to $96 million in customer funds are still unaccounted for, leaving many individuals waiting to retrieve their money. The Federal Deposit Insurance Corp. (FDIC) logo displayed by many fintech apps may not guarantee protection for customers if the company goes under, even if they partner with traditional banks.

Various types of fintech services, such as payment apps, investment platforms, digital currency platforms, and digital lenders, offer different levels of protection. For example, payment apps may pool customer funds in accounts that make it challenging to track individual deposits, while crypto platforms lack government-backed protection, leaving customers vulnerable in case of a failure.

To protect themselves, experts recommend using fintech apps as tools rather than primary banks, diversifying funds across multiple financial institutions, and keeping records of identity verification with the platform. As federal regulators increase scrutiny of fintech services, maintaining a primary banking relationship with a traditional, FDIC-insured institution is advised to mitigate risks associated with using fintech platforms.