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

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After a tumultuous year, 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 pending bankruptcy court approval.

Founded in 2017, Mountain View-based TabaPay is an instant money movement platform that SoftBank backed in a 2022 round of an undisclosed sum.  It is not clear how much venture capital it has raised.

San Francisco-based Synapse, which operated a platform enabling banks and fintech companies to develop financial services, was founded in 2014 by Bryan Keltner and India-born CEO Sankaet Pathak. 

In 2019, TechCrunch reported on the company’s $33 million Series B raise led by Andreessen Horowitz after rebranding from SynapseFi. That was the company’s last known fundraise. 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 pointed out that Synapse made Deloitte’s 2023 Fast, posting 650%+ growth over a five-year period. However, it had two large-scale layoffs in the past year, blaming slowing growth.

Last October, Synapse laid off 86 people, or about 40% of the company. This was after the startup had previously  let go of 18% of its workforce last June. At the time, Synapse said “the current macroeconomic conditions” had begun to impact its clients and platforms, affecting its anticipated growth.

Besides having to lay off staff, Synapse also ran into difficulties last year after having served as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury. When Evolve and Mercury decided to end their respective relationships with Synapse and work directly with each other, Evolve and Synapse were reportedly at odds with each other as the relationship was winding down. 

In particular, the entities were reportedly blaming each other “over who was responsible for a “deficit” of over $13 million in “for benefit of” accounts holding customer funds at Evolve, among myriad other issues” going back at least three years. Neither company ever addressed the allegations.

In a Medium post, Pathak said he was “excited” about the acquisition, writing: “Leveraging TabaPay, customers will join a thriving ecosystem of 15 bank partners, 16 network connections, 2,500+ existing clients, and domain expertise of the collective team.”

Rodney Robinson, the co-founder and CEO of TabaPay, said in a written statement that Synapse’s assets would be a “great and natural fit” to its existing services. to grow its offerings “in tandem with providing continuity to Synapse clients and banks.” 

Banking-as-a-service woes

The banking-as-a-service space as a whole has faced turbulence in recent times. Several players in the industry have announced layoffs over the past year. Most recently, Synctera cut about 15% of its staff. Treasury Prime slashed half its 100-person staff in February, a year after it announced a $40 million Series C raise. Figure Technologies, which includes Figure Pay, laid off 90 people — or about 20% of its workforce — last July.

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

BaaS refers to various types of business models such as offering bank-like services to other players in the industry; or providing the charter and bank services but not doing the underwriting; or offering banking components, which is more of a fintech that isn’t a bank but provides some bank-like services without a charter.

Players in BaaS have faced challenges, especially regulatory crackdowns in 2023. For instance, those providing BaaS to fintech partners accounted for more than 13% of severe enforcement actions from federal bank regulators last year, S&P Global Market Intelligence reports. 

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

Mittal noted in a post on X that despite banking-as-a-software being around for a decade, it is still an industry devoid of multiple billion-dollar businesses, writing, “Investors have burned $1B+ and created less value than that. The whole vertical is still very small in terms of value created through exits.”

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

With regard to Solid, co-founder and CEO Arjun Thyagarajan told TechCrunch via email earlier this month that “the case has been settled, and as a result, FTV is no longer involved in the business.”

There has been other M&A activity, too. Last June, FIS, the fintech giant that runs a wide range of payment, banking and investment services, announced it had acquired Bond, a startup that specialized in embedded finance.

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