• Aaron Holmes, Founder and CEO at Kani Payments


• 22.08.2024 11:45 am
#SynapseCollapse #Reconciliation

The collapse of US Banking-as-a-Service (BaaS) provider Synapse highlights the importance of accurate reconciliations based on standardised data—and how those reconciliations impact customer fund safeguarding.

Synapse was the BaaS intermediary that enabled customer-facing fintechs to take deposits from end customers and hold them on the Synapse platform. They filed for bankruptcy in May 2024, with $85 million in customer funds declared missing. 

It’s come to light that Synapse didn’t maintain an accurate ledger or conduct full or accurate reconciliations – leading to incorrect customer fund balances. While some partner banks have located and distributed funds held in demand deposit accounts (DDAs) on Synapse’s platform to their end users, reconciling and returning funds held in ‘for benefit of’ (FBO) accounts is causing major headaches. 

Just some of the reconciliation challenges identified are:

• Synapse placed fintechs’ customer funds across several banks, meaning a single end user had balances at several institutions, making reconciliations more complicated.

• Synapse’s ledgers and records are either inaccurate or inaccessible, so fund movements can’t be reconciled accurately. 

• Interbank transfers made by Synapse were not specifically allocated to end users or partner clients.

It’s also emerged that Synapse jeopardised the safety of customer funds by co-mingling them with its own parent and subsidiary account. Consequently, investigators don’t know where the missing funds are, which transactions were involved, and which customers need restitution.

The importance of protecting customer funds 

Customer fund safeguarding depends on accurate reconciliations. Without accurate data to reconcile transactions and calculate customers’ account balances, fintechs cannot know for certain where customers’ money is and what needs to be segregated in a separate account.  

It should be standard business practice for safeguarding account reconciliations to be done daily. Accurate reconciliations should give a daily compliance balance or control total of zero. But without accurate reconciliation data, many businesses will be oblivious to errors or suspicious transactions that need urgent attention.

The operational failures at Synapse show us that reconciliation is mission-critical and can mean the difference between survival or failure. As the finance industry becomes more complex and attracts more regulatory scrutiny, the need for robust reconciliations has never been more apparent.

At Kani, we recognise this challenge and have made it our mission to empower clients with cutting-edge technology for lightning-fast, compliance-ready reconciliation and reporting. Our platform offers unparalleled visibility into every transaction, ensuring our clients can confidently manage daily safeguarding account balances, track funds requiring safeguarding and stay ahead of changes in customer balances. We’re proud our work helps payments and fintech businesses turn reconciliation from a pain point into a legitimate advantage.