Savings app CEO says 85,000 accounts locked in fintech meltdown: ‘We never imagined a scenario like this’

cnbc.com:

When Adam Moelis co-founded a fintech startup named Yotta in 2019, he wanted to give Americans a new way to save money to help them cushion the ups and downs of life.

Instead, his company has inadvertently been a source of deep pain for thousands of customers who relied on Yotta accounts to receive paychecks, pay bills and save for emergencies.

The crisis began May 11, when a dispute between two of Yotta's banking partners — fintech middleman Synapse and Tennessee-based Evolve Bank & Trust — led to the lockup of accounts at Yotta and at least two dozen other startups. Synapse declared bankruptcy earlier this year after several key clients abandoned the firm amid disagreements over the tracking of customer funds.

For the past three weeks, 85,000 Yotta customers with a combined $112 million in savings have been locked out of their accounts, Moelis told CNBC. The disruption had upended lives, forced users to borrow money for food and thrown upcoming events like surgeries or weddings into doubt, he said.

«The stories are heartbreaking,» Moelis said. «We never imagined something like this could happen. We worked with banks that are members of the FDIC. We never imagined a scenario like this could play out and that no regulator would step in and help.»

The ongoing mess has exposed the risks in a corner of fintech that grew in prominence during a boom in venture investment — and it will likely reverberate for years as regulators increase scrutiny of the space.

The so-called «banking as a service» model allowed consumer fintech companies to quickly launch savings accounts and debit services, with firms like Synapse acting as a bridge between the startups and FDIC-backed banks that ultimately held deposits.

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