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Payment processor TabaPay said it has agreed to acquire the operating assets of Synapse Financial Technologies, a troubled banking-as-service fintech. According to TabaPay, the sale follows Synapse’s filing today of a Chapter 11 bankruptcy petition, meaning the deal must be approved by the bankruptcy court. The sale would move San Francisco-based Synapse’s lending, brokerage and credit and debit card issuing platforms to Mountain View, California-based TabaPay.
TabaPay CEO Rodney Robinson described Synapse’s services as “a natural fit” to those his company already offers and said he expects to hire “quite a few” of Synapse’s 100 or so current employees. He added that Synapse CEO Sankaet Pathak will join TabaPay in a role to be announced next week. He declined to say what TabaPay has agreed to pay for the assets, though presumably that should be disclosed later in bankruptcy court filings.
In a post on Medium today, Pathak lauded the deal as providing “continuity” and better support for Synapse’s customers—without, however, mentioning a bankruptcy filing. As of this writing, a filing was not available in the bankruptcy court system.
Pathak founded Synapse in 2014 as a digital bank and quickly pivoted into the business of helping other fintechs partner with traditional banks so they could offer financial products such as checking accounts and debit cards. The San Francisco-based company raised a total of $51 million from venture capital investors, with $33 million of that in a mid-2019 round led by Andreessen Horowitz that valued the startup at $180 million, according to Pitchbook.
But by early 2020, Forbes was reporting that Pathak had management problems so severe that Synapse’s future was in jeopardy. More recently, Synapse has had other problems, including a crumbling relationship with its banking partner, West Memphis, Arkansas-based Evolve Bank & Trust. That came to a head in October with the discovery of millions of missing dollars from Synapse clients’ accounts at Evolve. The same month, Forbes reported that Synapse and its clients needed to be off Evolve by December 31, 2023. Last month, Fintech Business Weekly reported that TabaPay was considering acquiring Synapse.
TabaPay, a member of the Forbes Fintech 50, is growing quickly with $36 million in 2023 net revenue, up from $26 million the year before. Now it aims to become a one-stop shop for its fintech clients, which include Chime, the nation’s largest digital bank; earned wage access provider DailyPay and lending startup Upgrade.
Synapse Credit holds lending licenses in 44 U.S. states and Synapse Brokerage is a registered broker-dealer and member of FINRA and SIPC.
Rather than act as an intermediary to banks (as Synapse did), Robinson said, TabaPay plans to use Synapse’s licenses and technology to provide bank-like services to Synapse’s remaining customers as well as its own current customers.
Synapse’s lending licenses will mean fintechs can launch offerings like buy-now, pay-later products or secured credit cards directly through TabaPay, he explained.
“We have a ton of new products we can sell to our customers to maintain an accelerated growth rate,” Robinson said. “We can offer more of the fintech pie to our customer base.”
Recently, regulators have increased scrutiny on lending platforms popular among fintechs that enable products like buy-now, pay-later and other point-of-sale loans. Last year, Cross River Bank entered into a consent order with the Federal Deposit Insurance Corporation agreeing to increase the oversight of its program helping other businesses launch credit products.
The Synapse deal, Robinson said, gives TabaPay an opportunity to answer any demand from fintechs that have been left with fewer options in the wake of regulatory actions.
