Think Fintech Is Safe? This Hidden Danger Could Cost You | Global News Avenue

The failure of San Francisco-based fintech company Synapse, which resulted in up to $96 million disappearing from the accounts of tens of thousands of people overnight, has many people understandably nervous.

Synapse filed for bankruptcy in April 2024, nearly eight months later, and many customers have yet to see the funds they thought were protected by FDIC insurance. This is an extreme case, but it highlights some of the pitfalls of using these increasingly popular banking options.

Luckily, there are things you can do to avoid fintech (like using our Top Recommended High-Yield Savings Accounts) or protect your finances while still enjoying the benefits of these apps.

What happens at the synapse?

Synapse Financial Technologies is a financial company that filed for bankruptcy in California in April 2024. It is essentially a bookkeeper between fintech banking services, which are not real banks and therefore do not provide services. Federal Deposit Insurance Corporation (FDIC) Insurance-and actual Banks, they have insurance.

This roundabout arrangement allows Fintech company Provide high-quality, high-value banking services without going through the time-consuming and expensive process of becoming a real bank itself. This is the fundamental basis of how most fintech banking applications actually work today.

Forensic accountants and lawyers are still piecing together what happened, but it’s clear Synapse didn’t record the transactions properly. This resulted in account errors and many customers were unable to withdraw funds. As of early December 2024, some customers with many fintech companies are still unable to access funds, and the impact continues to be felt.

How to avoid falling victim to fintechs like Synapse

The only way is really Avoiding such a disaster would be equivalent to avoiding fintech banking altogether. You can do this by directly contacting FDIC insured bank and insured credit unions National Credit Union Administration (NCUA).

You may want to read the fine print. Be wary of companies that advertise banking services but do not say they are an FDIC-insured bank or an NCUA-insured credit union (some banks and credit unions offer online banking services – these are no Same as third-party fintech companies). These companies often state outright that they are not banks. And, be wary of any company that claims to open an escrow account on your behalf or an account “for the benefit of.”

If you do want to work with a fintech company, following some good practices will help.

First, the FDIC warned against depositing funds needed for “normal living expenses” into fintech companies. Just like investing, it’s a good idea to keep stocks Fund reserves elsewherein case something happens to your mixing bowl. If it does happen, you’ll still have money to fall back on while the chaos is sorted out.

Second, be careful when choosing the fintech companies you partner with. When opening an account with a fintech company, you should be very aware of the following three points:

• Where Your money has been deposited: Check with FDIC Bank finder tool Fintech banking partners actually Do FDIC insured. Skip any fintech company that works with the bank you already use, as you may end up Exceeds FDIC coverage limits.
• when Your money has been deposited: No insurance until actual transfer. Look for fintech companies that can instantly transfer your funds to an FDIC-insured bank.
• how Your deposit has been recorded: Check if the fintech company has a way to record the specific amount of money that belongs to each person in each bank it uses. If it’s untraceable, you may have trouble getting your money, even if your funds are held in an FDIC-insured bank.