That a16z cannot coach, nurture and support one of their startups that has customers, and who has direct access to customers' own bank accounts, seems troubling.
Series B is a different from the nurturing and mentorship standpoint.
At that point a company (which is what a startup is) is expected to be able to run, but needs some additional capital to expand and execute on the strategy they were testing in Angel, Seed, and Series A.
I confess I'm very jaded when it comes to startup offerings.
Basically im thinking "you'll be gone in 5 years, where does that leave me?" If that answer is bad, then I'm not really interested.
I'm happy to use a product I need now for now, but I want 2 or 3 providers for any external service that is critical.
Of course track record matters. AWS has shown they'll be around. Google will be around, but their habit of killing things means I avoid them. Azure is here to stay. But your new, cheaper, faster, better hosting solution? I'm not gonna commit anytime soon.
Ideally you don't want to be dependent on 1 supplier. The risk is they Sherlock you, or block you (voluntarily or not.)
History is knee-deep in the corpses of businesses that made this mistake.
In the abstract, that's an easy platitude to throw around. And hindsight is easy. The problem is there are real opportunity costs on not being dependent on 1 supplier/vendor/integration/aws-region/etc, and you can't know, in advance, which one's Synapse, and which one is AWS, and you're always going to be vulnerable to black swan events.
There's little history written about shots not fired.
It depends enormously on the type of business... a startup that might not be around in 5 years can take a punt on embedding a product like this into their main offering, but a big company that has a public reputation to manage probably can't.
> “I’d expect heightened attention to ongoing due diligence around the financial condition of these kinds of middleware vendors, none of which are profitable, and increased focus on business continuity and operational resilience for banks engaged in BaaS operating models.”
This is exactly why banking regulations (e.g., FDIC) were invented. Private organization could not be depended on for "heightened attention" or to do "due diligence". It's little wonder that these new private organization would behave similarly. It's amazing that this person can say that with a straight face.
> This is exactly why banking regulations (e.g., FDIC) were invented.
But the FDIC suppresses the natural heightened attention and due diligence tendencies of the free market. There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking. The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either. If anything the FDIC should be cast as a serious moral problem, people with money are being allowed to take no-care no-responsibility stances when their capital is being used harmfully.
And I'm not sure where this argument comes from that capitalists wouldn't care about their money. One of the things that people most reliably care about is the safety of their money, to the point where it is hard to parody. The main issue that I see is they are acting while weighing up the (reasonably high) odds of bailouts happening.
Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver?
> There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking
I have no insight to the institutions I give my money to; if they operate on American soil, I "understand" that they have been regulated and brought up to standard by the State.
The fact that a consumer depositing their money in the bank has to do "due diligence" or needs to be blamed when the institution (company?) goes belly up is laughable.
> Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver?
No. If there is a crash the driver will still be involved in the crash. Seatbelts are a risk-reduction technique, FDIC is risk transfer.
> I have no insight to the institutions I give my money to...
The good news is you're pretty normal. However the observation is you're enabling a bunch of rather untrustworthy people who don't care about your interests and it is pretty easy to imagine that story ending worse than if you were in a position where you either demanded some insight or didn't give them money.
> Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver?
I love this analogy. It neatly highlights that an individual, no matter how "attentive" can still be acted on by external forces. And also, implies that said individual is always affected by those around them, because they share their environment with others.
I find that same have difficult grasping these points, at times.
> The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either
But these weren't a shady schemes that offered unbelievable returns, just basic bank cards - No 15 year old is going to, is able to, or should be expected to audit the vendors that the 'bank' account they use for holding their allowance in uses.
I mean, there is an assumption in your post. That assumption is that a 15 year old should be able to give their money to some untrustworthy stranger to do who-knows-what and expect to get the money back.
It is a weird double standard to me given the thread root post. I don't think people should be giving money to others thoughtlessly. If you aren't capable of understanding the consequences of your investments - as this 15 year old clearly isn't - don't invest. There is this whole financial system where we know that the people involved are sub-competent, a lot of the financial incentives that would flush incompetents out of the system have been removed, and then we expect this 15 year old to support their operations financially.
To me that seems kinda silly when we put it together. This 15 years old can just put the money in a known full-reserve bank. We don't have those because responsible custodianship is uneconomic with things like the FDIC floating around, but that is a regulatory problem.
> I mean, there is an assumption in your post. That assumption is that a 15 year old should be able to give their money to some untrustworthy stranger to do who-knows-what and expect to get the money back.
No I’m saying companies shouldn’t be able to look like banks without being regulated like them. This could be through a government agency, or a rating or industry organisation that guarantees orderly shutdown.
If the travel industry can ensure tourists aren’t stranded abroad when travel agencies go bust why can’t fintech.
> There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking
The problem us that consumers are not capable of figuring out whether a corporation is well managed or not. They have neither the information nor the analytical abilities. Analysts, even specialists in risk, and regulators often get it wrong! Very few people saw the 2008 collapse coming. Some of us had doubts about particular institutions (Northern Rock, first UK bank to go, in my case) or about the level of bad mortgage lending, but very few people, and very few of those who were supposed to know,saw it coming.
> And I'm not sure where this argument comes from that capitalists wouldn't care about their money.
Where did you get that from? The problem is that people who are in charge of other people's money will risk it for various reasons, often due to a conflict of interests.
Edit: to add, the problem is really "agency issues" - was trying to avoid terminology.
> The problem is that people who are in charge of other people's money will risk it for various reasons, often due to a conflict of interests.
Thank you for your response.
I wanted to amplify this point. This sort of thing is very common in hierarchical organizations. de Mesquita and colleagues have a model that fits reality quite nicely, and indicates a reason for this behaviour.
Frankly, every time an American colleague comes swinging with free marketeering "ideologies" and the naturality of "people are not stupid they can do their own due diligence" it is these kind of stories I show them.
If the American society is a low-trust one, this is one of the reasons why.
> This is exactly why banking regulations (e.g., FDIC) were invented.
When it comes to this kind of stuff, there's a large and sometimes-glossed-over difference between: "These laws/regulations are bad" versus "there's no real reason for these laws/regulations to exist."
The latter is frustrating to hear, since it is less a philosophical disagreement and more of a "those who do not know history are doomed to repeat it" problem.
>This is exactly why banking regulations (e.g., FDIC) were invented.
No it's not. FDIC deposit insurance was invented because no amount of due diligence can stop a bank run once it has been triggered somehow, and no amount of due diligence can stop domino effects.
For banks to serve their purpose of accepting deposits and make loans that cannot be called at a moment's notice, you have to accept that even the best run banks are exposed to this sort of risk.
Systemic risks simply cannot be handled at the level of individual banks. It's a structural feature of the banking system.
This is appalling, customers have lost access to their funds, because the company didn't have the cash to run their services. No part of the banking system should operate outside the support of a banking regulator who would/should step in with a loan so that customers could move their assets out in an orderly fashion.
> At an emergency hearing Tuesday, U.S. Bankruptcy Court Judge Martin R. Barash, of the Central District of California, framed the situation starkly. “What we're really looking at with the meltdown of this company (Synapse), and it is melting down – there was a purchase that didn't go through, it's almost out of cash – is a situation where tens of millions of people do not have access to potentially hundreds of millions of dollars of their deposits,” he said. Barash suggested it was time for the federal bank regulators to get involved.
> No part of the banking system should operate outside the support of a banking regulator
The main reason fintechs were so nimble was because they would sidestep federal regulators by being state-chartered banks.
I am in agreement with you that stare regulators need to also be stricter.
We'll probably see state regulators increasingly adopt Basel II and force stricter compliance on state entities this coming decade.
Another loophole they often would try is partner with a couple local banks to use as their underlying foundation, and build most of their functionality on top of that.
This is what Synapse did [0], and why their underlying banking infra is backed by Evolve Bank & Trust in Tennessee, who provide their underlying banking infra to plenty of other A16Z funded fintechs. They are a member of the Federal Reserve so I wouldn't be worried about your deposits per say.
The issue seems to be Synapse's lack of operating capital which means all the "middleware" will functionally stop working.
> The issue seems to be Synapse's lack of operating capital which means all the "middleware" will functionally stop working.
The only example I can think of how a regulator can stop this is the Lehman bankruptcy. When Lehman went under the U.K. branch was left with zero dollars - nothing to pay staff, rent, or power. The Bank of England sent a £1M within hours to keep the lights on, so the administrators could be appointed and start winding down the assets.
Are we even hearing ourselves? Banking-as-a-service? When has banking not been a service? Software was sold as a product, with shrinkwrapped boxes. Selling it 'as-a-service' was a shift in paradigm. Appending this to businesses that have always been services just makes tech people sound out of touch. Not that this massive failure to 'disrupt' banking helps.
I’m not sure which country you are from. But not in every country you get a “service” from a bank. I know in Canada banks are terrible (oligopolies) and the UIs are from the early 2000s with insanely bad security practices, like 4 digit passwords and SMS-only 2FAs.
I’d gladly use and even pay for good UX in Canada.
If I understood right, the product here was selling banking services to other companies to build their own products on top of that. That's not a "banking service" in the typical sense, and I think the naming is correct.
You seem to have contradicted yourself. Banking is a service in every instance of the word "banking" here. Appending "as a service" doesn't add meaningful information, it just make technology people sound outta touch with the reality of other business domains.
No, it differentiates actual banking services from a service sold for companies to build products upon, so likely a set of APIs. There needs to be different naming for these concepts, and BaaS is a good and descriptive name for it.
What's wrong with calling baking software "baking software"?
The "as-a-service" everything tag is become marketing hype. It is not meaningful analysis.
But at this point we can just agree to disagree. I think adding 'as-a-service' to everything and trying to 'disrupt' everything makes us look bad. You may think it looks good. Matter of opinion.
BaaS is terribly ambiguous; "reseller" & "aggregator" are already used and well known in other industries. VCs with more money than brains just getting schooled trying to be hip.
The better term is really "B2B" (Business to Business). I mean, yes, in the end it's going to an "end user" (ideally a specific entity) with a bank account... But the "services" are from these middlemen looking to take yet another cut so the bank can fire people to "save money" and spend it on the (supposedly cheaper) middle<strike>man</strike>API.
Til it falls and woops maybe chasing cheap fucks you in the long run. But hey, the investors made a profit! Who cares about the externalities.
Let me start by saying that I understand the pain losing access to your money can cause and I feel for the customers in this situation.
That said, their money was FDIC insured correct? From everything I’ve read about this it’s more of an issue of temporarily (unknown time) losing access. Which again, is still a huge deal but very different from losing your money forever. Even with the SVB collapse people got access again within a week or so IIRC.
All of that to say, this is why I love tools like YNAB. I’ve been through two banks closing on me (Simple and HMBradley) one before using YNAB and one after. With YNAB I treat banks as interchangeable commodities where I can pick and choose which I use based on the best deal I can get. Where my money lives is of little consequence to me as long as it’s in a FDIC account and my main bill pay account is solid. That lets me pick something like Chase to be my main bank (brick and mortar, safer bet, obviously nothing is perfectly safe) while also making use of “fintech” banks like OneFinance (I liked them better before Walmart bought them) that offer higher interest rates on saving accounts (5%).
I still wouldn’t want any of my accounts to be at a bank that goes under but with YNAB I can see my whole financial situation at a glance (and I have the history even if one of my banks go under) and I care a lot less about where my money is (bank) vs how I’ve budgeted it and planned for the future.
When HMBradley shut down it was almost too easy to check the handful of services that were being paid from that account (using YNAB) and shift them elsewhere as well as transferring out the money held there. Even if HMB had imploded and I had lost access for days or weeks I could have managed without much issue because YNAB is the “One True Source” of my finances.
I know this is a bit off-topic but I encourage you to check out a service like YNAB (doesn’t have to be YNAB, there are many alternatives, I just like YNAB) because it gives you a freedom in managing your finances/money that previously required hoping your bank had decent tools (like Simple’s) and then putting all your money in one place. I had to rework and rethink a lot when Simple closed down but now YNAB is where all my data is and I don’t care what tools the banks I use offer, they are just a place to store money and so I can hunt for the best deals and ignore the features.
Also this video was instrumental in helping me understand YNAB: https://m.youtube.com/watch?v=exS0gU-Ie8E (I watched the original, this is the updated one from a few years ago)
> That said, their money was FDIC insured correct?
As of right now, there is no indication that any customer money is missing.
At the bankruptcy hearing, a lawyer for one of the banks testified that the money at their bank is still there, but frozen. The money was in a single pooled account and Synapse was in charge of giving them the information they needed to do all the compliance and anti-money laundering checks, as well as figure out how much of the pooled money belonged to any individual customer. The bank no longer is getting that info, ergo the money has been frozen and will sit there until it is all sorted out.
> As of right now, there is no indication that any customer money is missing.
I haven't been following this very closely, but the last I heard the problem was that they had no records of how much money should go to each customer. Even if all the money is there, it's in a big pool all together, and you can't get it back if you can't prove how much of the pool is yours.
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[ 0.24 ms ] story [ 153 ms ] threadAt that point a company (which is what a startup is) is expected to be able to run, but needs some additional capital to expand and execute on the strategy they were testing in Angel, Seed, and Series A.
Basically im thinking "you'll be gone in 5 years, where does that leave me?" If that answer is bad, then I'm not really interested.
I'm happy to use a product I need now for now, but I want 2 or 3 providers for any external service that is critical.
Of course track record matters. AWS has shown they'll be around. Google will be around, but their habit of killing things means I avoid them. Azure is here to stay. But your new, cheaper, faster, better hosting solution? I'm not gonna commit anytime soon.
Ideally you don't want to be dependent on 1 supplier. The risk is they Sherlock you, or block you (voluntarily or not.)
History is knee-deep in the corpses of businesses that made this mistake.
There's little history written about shots not fired.
AWS is the one with ~$100,000,000,000 per year in revenue
This is exactly why banking regulations (e.g., FDIC) were invented. Private organization could not be depended on for "heightened attention" or to do "due diligence". It's little wonder that these new private organization would behave similarly. It's amazing that this person can say that with a straight face.
https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
But the FDIC suppresses the natural heightened attention and due diligence tendencies of the free market. There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking. The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either. If anything the FDIC should be cast as a serious moral problem, people with money are being allowed to take no-care no-responsibility stances when their capital is being used harmfully.
And I'm not sure where this argument comes from that capitalists wouldn't care about their money. One of the things that people most reliably care about is the safety of their money, to the point where it is hard to parody. The main issue that I see is they are acting while weighing up the (reasonably high) odds of bailouts happening.
> There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking
I have no insight to the institutions I give my money to; if they operate on American soil, I "understand" that they have been regulated and brought up to standard by the State.
The fact that a consumer depositing their money in the bank has to do "due diligence" or needs to be blamed when the institution (company?) goes belly up is laughable.
No. If there is a crash the driver will still be involved in the crash. Seatbelts are a risk-reduction technique, FDIC is risk transfer.
> I have no insight to the institutions I give my money to...
The good news is you're pretty normal. However the observation is you're enabling a bunch of rather untrustworthy people who don't care about your interests and it is pretty easy to imagine that story ending worse than if you were in a position where you either demanded some insight or didn't give them money.
> Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver?
I love this analogy. It neatly highlights that an individual, no matter how "attentive" can still be acted on by external forces. And also, implies that said individual is always affected by those around them, because they share their environment with others.
I find that same have difficult grasping these points, at times.
But these weren't a shady schemes that offered unbelievable returns, just basic bank cards - No 15 year old is going to, is able to, or should be expected to audit the vendors that the 'bank' account they use for holding their allowance in uses.
It is a weird double standard to me given the thread root post. I don't think people should be giving money to others thoughtlessly. If you aren't capable of understanding the consequences of your investments - as this 15 year old clearly isn't - don't invest. There is this whole financial system where we know that the people involved are sub-competent, a lot of the financial incentives that would flush incompetents out of the system have been removed, and then we expect this 15 year old to support their operations financially.
To me that seems kinda silly when we put it together. This 15 years old can just put the money in a known full-reserve bank. We don't have those because responsible custodianship is uneconomic with things like the FDIC floating around, but that is a regulatory problem.
No I’m saying companies shouldn’t be able to look like banks without being regulated like them. This could be through a government agency, or a rating or industry organisation that guarantees orderly shutdown.
If the travel industry can ensure tourists aren’t stranded abroad when travel agencies go bust why can’t fintech.
To the best of my knowledge payouts are incredibly rare.
The problem us that consumers are not capable of figuring out whether a corporation is well managed or not. They have neither the information nor the analytical abilities. Analysts, even specialists in risk, and regulators often get it wrong! Very few people saw the 2008 collapse coming. Some of us had doubts about particular institutions (Northern Rock, first UK bank to go, in my case) or about the level of bad mortgage lending, but very few people, and very few of those who were supposed to know,saw it coming.
> And I'm not sure where this argument comes from that capitalists wouldn't care about their money.
Where did you get that from? The problem is that people who are in charge of other people's money will risk it for various reasons, often due to a conflict of interests.
Edit: to add, the problem is really "agency issues" - was trying to avoid terminology.
Thank you for your response.
I wanted to amplify this point. This sort of thing is very common in hierarchical organizations. de Mesquita and colleagues have a model that fits reality quite nicely, and indicates a reason for this behaviour.
https://en.wikipedia.org/wiki/The_Logic_of_Political_Surviva...
If the American society is a low-trust one, this is one of the reasons why.
When it comes to this kind of stuff, there's a large and sometimes-glossed-over difference between: "These laws/regulations are bad" versus "there's no real reason for these laws/regulations to exist."
The latter is frustrating to hear, since it is less a philosophical disagreement and more of a "those who do not know history are doomed to repeat it" problem.
No it's not. FDIC deposit insurance was invented because no amount of due diligence can stop a bank run once it has been triggered somehow, and no amount of due diligence can stop domino effects.
For banks to serve their purpose of accepting deposits and make loans that cannot be called at a moment's notice, you have to accept that even the best run banks are exposed to this sort of risk.
Systemic risks simply cannot be handled at the level of individual banks. It's a structural feature of the banking system.
https://www.forbes.com/sites/emilymason/2024/05/14/judge-say...
https://archive.ph/RhAzM
> At an emergency hearing Tuesday, U.S. Bankruptcy Court Judge Martin R. Barash, of the Central District of California, framed the situation starkly. “What we're really looking at with the meltdown of this company (Synapse), and it is melting down – there was a purchase that didn't go through, it's almost out of cash – is a situation where tens of millions of people do not have access to potentially hundreds of millions of dollars of their deposits,” he said. Barash suggested it was time for the federal bank regulators to get involved.
The main reason fintechs were so nimble was because they would sidestep federal regulators by being state-chartered banks.
I am in agreement with you that stare regulators need to also be stricter.
We'll probably see state regulators increasingly adopt Basel II and force stricter compliance on state entities this coming decade.
Another loophole they often would try is partner with a couple local banks to use as their underlying foundation, and build most of their functionality on top of that.
This is what Synapse did [0], and why their underlying banking infra is backed by Evolve Bank & Trust in Tennessee, who provide their underlying banking infra to plenty of other A16Z funded fintechs. They are a member of the Federal Reserve so I wouldn't be worried about your deposits per say.
The issue seems to be Synapse's lack of operating capital which means all the "middleware" will functionally stop working.
[0] - https://synapsefi.com/legal
The only example I can think of how a regulator can stop this is the Lehman bankruptcy. When Lehman went under the U.K. branch was left with zero dollars - nothing to pay staff, rent, or power. The Bank of England sent a £1M within hours to keep the lights on, so the administrators could be appointed and start winding down the assets.
This is what was done with SVB, First Republic, Signature, and Silvergate.
I’d gladly use and even pay for good UX in Canada.
If I understood right, the product here was selling banking services to other companies to build their own products on top of that. That's not a "banking service" in the typical sense, and I think the naming is correct.
> not a "banking service"
You seem to have contradicted yourself. Banking is a service in every instance of the word "banking" here. Appending "as a service" doesn't add meaningful information, it just make technology people sound outta touch with the reality of other business domains.
The "as-a-service" everything tag is become marketing hype. It is not meaningful analysis.
But at this point we can just agree to disagree. I think adding 'as-a-service' to everything and trying to 'disrupt' everything makes us look bad. You may think it looks good. Matter of opinion.
> Matter of opinion.
Indeed, there's going to be different views on these things so let's leave it there.
BaaS provider aren't regulated in the same way.
So it's good if they have a different for a service from a different entity.
Banking service is the service of a bank.
BaaS is the service of a middleman who sells the banking service of a bank to its customers.
Synapse isn't a bank.
Til it falls and woops maybe chasing cheap fucks you in the long run. But hey, the investors made a profit! Who cares about the externalities.
That said, their money was FDIC insured correct? From everything I’ve read about this it’s more of an issue of temporarily (unknown time) losing access. Which again, is still a huge deal but very different from losing your money forever. Even with the SVB collapse people got access again within a week or so IIRC.
All of that to say, this is why I love tools like YNAB. I’ve been through two banks closing on me (Simple and HMBradley) one before using YNAB and one after. With YNAB I treat banks as interchangeable commodities where I can pick and choose which I use based on the best deal I can get. Where my money lives is of little consequence to me as long as it’s in a FDIC account and my main bill pay account is solid. That lets me pick something like Chase to be my main bank (brick and mortar, safer bet, obviously nothing is perfectly safe) while also making use of “fintech” banks like OneFinance (I liked them better before Walmart bought them) that offer higher interest rates on saving accounts (5%).
I still wouldn’t want any of my accounts to be at a bank that goes under but with YNAB I can see my whole financial situation at a glance (and I have the history even if one of my banks go under) and I care a lot less about where my money is (bank) vs how I’ve budgeted it and planned for the future.
When HMBradley shut down it was almost too easy to check the handful of services that were being paid from that account (using YNAB) and shift them elsewhere as well as transferring out the money held there. Even if HMB had imploded and I had lost access for days or weeks I could have managed without much issue because YNAB is the “One True Source” of my finances.
I know this is a bit off-topic but I encourage you to check out a service like YNAB (doesn’t have to be YNAB, there are many alternatives, I just like YNAB) because it gives you a freedom in managing your finances/money that previously required hoping your bank had decent tools (like Simple’s) and then putting all your money in one place. I had to rework and rethink a lot when Simple closed down but now YNAB is where all my data is and I don’t care what tools the banks I use offer, they are just a place to store money and so I can hunt for the best deals and ignore the features.
https://www.ynab.com
Also this video was instrumental in helping me understand YNAB: https://m.youtube.com/watch?v=exS0gU-Ie8E (I watched the original, this is the updated one from a few years ago)
As of right now, there is no indication that any customer money is missing.
At the bankruptcy hearing, a lawyer for one of the banks testified that the money at their bank is still there, but frozen. The money was in a single pooled account and Synapse was in charge of giving them the information they needed to do all the compliance and anti-money laundering checks, as well as figure out how much of the pooled money belonged to any individual customer. The bank no longer is getting that info, ergo the money has been frozen and will sit there until it is all sorted out.
I haven't been following this very closely, but the last I heard the problem was that they had no records of how much money should go to each customer. Even if all the money is there, it's in a big pool all together, and you can't get it back if you can't prove how much of the pool is yours.
Even then, the inside scoop was that Synapse is poorly built and operated. Among the fintechs in YC Synapse has been known as a no-go for a while.
There were a lot of flags - compelling media hit pieces, churning customers, departing execs, etc.