Banks in Synapse mess are making progress toward releasing deposits of stranded fintech customers.

• The banks involved in the Synapse fintech middleman collapse have made progress in piecing together customer account information, which could result in a release of funds in a matter of weeks, according to a source.
• Since May, over 100,000 customers of fintech apps such as Yotta, Juno, and Copper have been unable to access their accounts.
• Initially, Evolve Bank intended to distribute $46 million from its payment processing accounts to provide customers with partial payments. However, it appears that a full reconciliation of customer accounts is now achievable.

Thousands of Americans whose savings have been trapped in frozen fintech accounts for two months may finally experience relief.

The banks involved in the Synapse fintech intermediary collapse have made significant progress in gathering account information for stranded customers, which could lead to the release of funds within weeks, according to a source.

The hiring of a former Synapse engineer by Evolve Bank & Trust and Lineage Bank has led to progress in unlocking data from the failed fintech middleman, according to an anonymous source.

The release of funds from banks involved in the debacle is being pressured by regulators, such as the Federal Reserve and the Federal Deposit Insurance Corporation, following increased awareness of the issue through media and lawmakers.

Since May, over 100,000 customers using fintech apps such as Yotta, Juno, and Copper have experienced account lockouts.

Jerome Powell, the Federal Reserve Chair, urged Evolve to take all necessary steps to ensure that depositors have access to funds on Tuesday during a hearing before the Senate banking committee.

After weeks of stalemate in a California bankruptcy court, key players involved in the negotiations, including Evolve chairman and founder Scot Lenoir, have expressed sudden optimism. However, shoddy record keeping and a lack of funds to pay for a forensic analysis have made it challenging to determine who is owed what, bankruptcy trustee Jelena McWilliams has stated.

The episode exposed how small banks in the "banking-as-a-service" industry failed to manage unregulated partners like Synapse, founded in 2014 by a first-time entrepreneur named Sankaet Pathak. Additionally, Evolve and several peers have been reprimanded by bank regulators for shortcomings related to their programs.

Missing customer funds

According to a source, Evolve Bank initially intended to distribute $46 million from its payment processing accounts to fintech customers in the form of partial payments.

Recently, it was discovered that a full reconciliation of customer accounts was possible, causing a change in the plan, the person stated.

The four main banks involved in the Synapse deal, Evolve, Lineage, AMG National Trust, and American Bank, may face a shortfall of funds, which could hinder their ability to repay.

McWilliams stated that up to $96 million is missing and owed to customers.

No representatives from Synapse, AMG, American Bank, or the FDIC responded to requests for comment regarding the article.

Evolve responded to FINRA's questioning on Wednesday, clarifying that although it holds some payment processing funds, the deposits from the Yotta app migrated out of Evolve and to a network of banks in late October 2023.

According to documents obtained by CNBC, FINRA was informed by Evolve that there is still some confusion regarding the possession and control of customer funds.

Adam Moelis, CEO of Yotta, confirmed in an Oct. 27, 2023, email to Lenoir that funds had departed Evolve by that date.

"Moelis stated this week in response to an inquiry from CNBC that Synapse and Evolve are now saying contradictory things, and he doesn't know who's telling the truth."