SoftBank-backed TabaPay is buying the assets of a16z-backed Synapse, after it filed for bankruptcy

After a tumultuous year, the banking-as-a-service (BaaS) startup Synapse has filed for Chapter 11 bankruptcy and its assets will be acquired by TabaPay, according to the two companies.

The deal is awaiting bankruptcy court approval.

Founded in 2017, based in Mountain View TabaPay is an instant money movement platform that Softbank backed in a 2022 funding round for an undisclosed amount. It’s unclear exactly how much venture capital he raised.

Based in San Francisco Synapse, which operated a platform allowing banks and fintech companies to develop financial services, was founded in 2014 by Bryan Keltner and Indian-origin CEO Sankaet Pathak.

In 2019, TechCrunch reported on the company’s activity. $33 million Series B raise led by Andreessen Horowitz after the rebranding of SynapseFi. This was the company’s last known fundraiser. In total, it brought in just over $50 million in venture capital. Other backers include Trinity Ventures and Core Innovation Capital.

In announcing the acquisition, TabaPay highlighted that Synapse had achieved Deloitte’s Fast 2023, showing growth of over 650% over a five-year period. However, the company has made two mass layoffs in the past year, blamed on slowing growth.

Last October, Synapse 86 people made redundant, or around 40% of the company. This was after the startup laid off 18% of its workforce last June. At the time, Synapse said “current macroeconomic conditions” had begun to impact its customers and platforms, affecting its projected growth.

In addition to having to lay off staff, Synapse also ran into trouble last year after serving as a middleman between banking partner Evolve Bank & Trust and merchant banking startup Mercury. When Evolve and Mercury decided to end their respective relationships with Synapse and work directly with each other, Evolve and Synapse would have been disagree with each other as the relationship ended.

In particular, the entities allegedly blamed each other “over who was responsible for a ‘deficit’ of more than $13 million ‘benefiting’ accounts holding client funds at Evolve, among myriad other issues.” dating back at least three years. Neither company has ever responded to the allegations.

In a Average postPathak said he was “excited” about the acquisition, writing: “By leveraging TabaPay, customers will join a thriving ecosystem of 15 partner banks, 16 network connections, over 2,500 existing customers and the domain expertise of the collective team.

Rodney Robinson, co-founder and CEO of TabaPay, said in a written statement that Synapse’s assets would be “an ideal and natural complement” to its existing services. to develop its offers “while ensuring the continuity of Synapse’s customers and banks”.

The woes of banking as a service

The banking-as-a-service industry as a whole has been facing turbulence in recent times. Several players in the sector have announced layoffs over the past year. More recently, Synctera eliminated around 15% of its staff. Treasury bonus cut half of its 100-person workforce in February, a year after announcing a $40 million Series C raise. Figure Technologies, which includes Figure Pay, 90 people were made redundant — or around 20% of its workforce — last July.

Meanwhile, Piermont Bank reportedly recently severed ties with startup Unit, Fintech Business Weekly reported.

BaaS refers to different types of business models such as offering banking-like services to other industry players; or by providing chartering and banking services but without underwriting; or offer banking components, which are more of a fintech that is not a bank but provides banking-type services without a charter.

BaaS players have faced challenges, including regulatory crackdowns in 2023. For example, those providing BaaS to fintech partners accounted for more than 13% of federal banking regulators’ tough enforcement actions last year , S&P Global Market Intelligence reports.

Rohit Mittal, co-founder and CEO of Pilotis, which offers products and financial resources to immigrants, knows something about this. His company was acquired by JG Wentworth late 2022.

Mittal noted in a post on that although banking as software has been around for a decade, it is still an industry devoid of several multi-billion dollar companies, writing: “Investors have burned more than $1 billion and created less than value than that. The entire vertical is still very small in terms of value created by exits. »

He provided examples including Synapse and Solid’s lawsuits with the investor FTV Capital made public last October, in which FTV demanded their money back.

As for Solid, co-founder and CEO Arjun Thyagarajan told TechCrunch via email earlier this month that “the matter was settled and as a result FTV is no longer involved in the business.

There has also been other M&A activity. Last June, FIS, the fintech giant that operates a wide range of payment, banking and investment services, announced that it has Obligation acquireda startup specializing in embedded finance.

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