2024 was the year that fintech failed.
The collapse of fintech companies like Synapse and Tally highlights a harsh truth about fintech failure: “new” solutions are often just dressed-up versions of outdated systems. More often than not, they offer little in the way of protection for consumers. In an era where fintech promises to revolutionize financial services, the painful reality is that many of these “innovations” rely heavily on legacy infrastructure with a shiny front-end.
These failures exposed a critical flaw in the fintech world: the disconnect between consumer-facing promises and the opaque, outdated systems powering these solutions. When fintechs fail, it’s not just the companies that bear the blame—consumers pay the price too. What can be learned from these failures is the importance of transparency, accountability, and a deeper understanding of the infrastructure supporting seemingly innovative solutions.
The Hidden Pitfalls of Fintech: Evolve and Synapse’s Failures
Synapse, a fintech, partnered with Evolve, a small to open accounts and issue debit cards to consumers. At its peak, more 100,000 customers had their funds held in large, commingled accounts managed by Synapse at Evolve.
When Synapse filed for bankruptcy in the summer of 2024, thousands of customers lost access to their financial assets. Evolve halted payment processing, stating it needed time to figure out how to distribute funds to customers. A month later, a court-appointed mediator revealed that up to $96 million in fintech customer funds could be missing from Evolve and other banks. As a result, Evolve is now facing lawsuits regarding the missing funds.
Both parties are shifting blame, each accusing the other of responsibility.
This example highlights the complexities at the forefront of so-called fintech “innovation.” While many fintechs espouse supposed new banking products, in reality, most rely on old-fashioned lenders like Evolve to operate quietly in the backend. This concept is known as a “for the benefit of” account, or FBO. In the case of Synapse and Evolve, these accounts operate as custodial deposit accounts, where a third party—such as Synapse or the bank itself—opens and manages the account at a bank like Evolve for the benefit of another party.
A Partnership Built on Faulty Foundations
Most consumers who fell victim to the Synapse collapse had likely never even heard of Evolve. What is even more confusing is that, while Evolve is insured by the Federal Deposit Insurance Corporation (FDIC), deposit insurance deposit did not apply when Synapse declared bankruptcy. This is because Evolve is not the entity that failed – Synapse was.
The Synapse collapse highlights a fatal flaw in fintech innovation. Just because a solution advertises itself as novel, does not mean that it is not working on the back of legacy systems. Unfortunately, the regulatory protections afforded to these traditional banking institutions powering the back-end do not always apply to the shiny front-end the customer sees. Buyer beware.
The Failure of Bench: Lessons for Fintech Startups
Bench, a Canadian accounting startup that offered tax solutions aimed at SMBS, abruptly shut down operations at year end. The company had raised $113 million in venture funding from high-profile investors like Bain Capital Partners, Shopify, and Altos Ventures. The sudden news left countless business owners scrambling during the holiday period to find new tax planning and preparation support.
The company, once an ambitious player in the cloud accounting space, aimed to scale low-cost bookkeeping services to serve a wider base of customers. Despite raising $60 million in funding as recently as 2021, the company struggled to gain significant market share against traditional accounting firms. Bench was never able to find a sustainable, profitable operating model.
Customer feedback highlights significant issues with the service. Some noted that Bench seemed to rely too heavily on machine learning, with minimal human oversight to review financial statements and assess whether transactions were accurately categorized. Others uncovered numerous errors when conducting client audits for past years. It is likely that these mistakes cost clients thousands.
Bench’s financial difficulties became evident in its recent pricing strategy. A sudden 50% price hike accompanied by a requirement for customers to lock into an annual subscription—announced with only 48 hours’ notice—hinted at urgent cash flow challenges. The reactive and abrupt nature of these changes raises questions about the company’s underlying financial health, and how long this operational strain had been affecting the company.
Why Human Oversight Still Matters in AI-Powered Solutions
The failure of Bench serves as a clear reminder of the dangers of over-relying on technology to instantly replace human expertise. In fields as detail-oriented as accounting, machine learning and automation cannot always match the level of judgment and insight that experienced professionals bring to the table. Bench’s struggle to scale and its inability to steal market share from traditional accounting firms speaks to the challenge of sustaining a fintech business in an established, service-driven industry.
The takeaway from this fintech failure is that while innovation is essential, startups need to ensure that their business models are built on solid foundations. This involves balancing tech with quality human oversight, and being cautious of any quick fixes for deeper financial problems. Without this, even the most promising fintech can find itself in a scramble for short-term cash at the expense of its reputation and future growth.
Fintech’s future depends on adequately balancing technology with reliable infrastructure to safeguard the people it serves. Innovation must be paired with transparency, consumer protection, and sound business practices. It is not enough to raise venture capital financing first, and figure out a sustainable operating model later. To succeed, fintech solutions must be built on solid foundations – not just flashy promises.
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