Missing Customer Funds Sting Fintech Bank

Scot Lenoir turned a sleepy farming bank in Arkansas into one of Silicon Valley's top financial partners. Now it is in crisis mode and some clients have started pulling funds after a business partner failed and thousands of customers couldn't access their money.

- ALEXANDER SAEEDY

Evolve Bank at its peak managed around $10 billion for financial technology firms, including Stripe and Affirm. It caters to fintechs that offer technologically friendly savings accounts for everyday people with sweeteners like high interest rates. Most fintechs don't hold their customers' funds and instead use banks like Evolve in the background.

Problems at the bank spilled into the open when a software company called Synapse went bankrupt in April. Synapse connected fintechs to banks like Evolve to store their own customers' funds. Synapse's job was to ensure that everyone's funds were accounted for, while Evolve would open accounts and issue debit cards to the customers. The funds of over 100,000 fintech customers were kept in large, commingled accounts under Synapse's management at Evolve, its primary bank partner for years.

After Synapse filed for bankruptcy, thousands of customers suddenly couldn't use their debit cards or move money out of their accounts at Evolve.

Evolve stopped processing payments and said it needed to determine how to distribute funds to customers. A month later, a court-appointed mediator disclosed that as much as $96 million in fintech customer funds might be missing from accounts at Evolve and other banks. Now, Evolve is facing lawsuits over the missing funds, and some clients are starting to back away from the bank.

Evolve and Synapse blame each other for the misplaced funds.

"Synapse failed to do the one most critical job they were supposed to do-keep accurate ledgers to track individual end user funds," Evolve said in a statement. It said it is working with other banks to find the funds.

Synapse founder Sankaet Pathak said in a statement that Evolve's inability to pay customers casts doubt on the "safety and security" of the financial system.

The bank, which is privately owned, remains well capitalized and has ample funds, according to a statement last month from Lenoir, the chairman.