Don't Lose Access to Your Cash: Comparing Banks, Neobanks, and Fintech Platforms for Cash Savings
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Welcome the money for the rest of us. This is a personal financial on money, how IT works, how to invest IT and how to live without worrying about IT. I'm your host, David stein.

Today is episode 4。 Ty three is titled smart cash management, navigating banks, neo banks and fin tech platforms. A week ago, I received an email from the crowd funding platform, yield street.

The title of the email was update on progress to return wallet fans. I was surprised about the email. I have an invested with yield street since twenty eighteen.

I didn't think I had any money there, so I signed into my account and apparently I have two cents in a yellow street wallet, the email said. Giving you access to your wallet deposits is our top priority. We are working with the banks to return them to you directly as quickly as possible.

That's a little disconcerting if you get that email from a provider and say you can get access to your funds. Now my case was too sense, but apparently IT just wasn't yield street. There were other fin tech platforms that users weren't unable to access their cash.

Here's a yeta user. Yt, as a savings APP user wrote, I have over sixty thousand dollars tied up in my account with absolutely no access to IT. I'm not able to get my hands on my money.

Then i'm going to start having cute you next month when my mortgage, property tax and bills began to pile up. Another APP is juno. That user says I ve been nearly forty thousand dollars tied up in this, which includes my emergency funds, savings from my house and car, and one of my children savings.

The funds were there due to an accident on my yard. They were supposed to be in treasure bills, but I forgot to reinvest and they were paid out. And now they are being held in this.

Now i'm stuck. I feel power less and unable to do anything. I'm so upset. And the users, the funeral, the fd I C, the federal reserve, a congressman, a senator, and the user says people are just passing things around and discussed.

I've written off the money, but will be thrilled by some miracle if I get IT back. I did some research and IT turns out there wasn't a bank failure or the APP summer cells haven't failed. What failed with snap financial technology? This is a middle are company that was connecting these pinch apps with commercial banks.

Cnp financial technologies went bankrupt on April twenty second twenty twenty four. And looking at the chapter eleven trustees initial status report date to june seven, twenty twenty four, we can see what happened. The trust is jelen michela.

SHE is the former chair of the board of directors of the federal deposit insurance CoOperation. SHE isn't charged. Figuring out what happened, where's the money? How do we get IT back? Snaps was a cenci co based data began in twenty fourteen in the banking as a service space to help tech companies provide banking services.

And sync served, as is the minor man they raised, thirty three million dollars in funding from. And recent horrod also goes by a sixteen z turning the ventures in others. They started in twenty fourteen and twenty twenty.

They developed a cash management program in connection with the subsidiary synaptic pse, broke age L L, C, and began offering cash management accounts. Their primary banking partner was evolved bank and trust. The bankrupt filing was in April twenty second, twenty twenty four.

And as part of that bankrupcy filing, snap agreed to sell its assets for just under ten million to taba bay holdings. L L. C. Tap pay eventually pulled out because of the big fiasco we're going to see and figuring out where all the money is.

Evolve bank and trust file a motion with the bankrupcy court asking for access to synapse SE dashboard stem, the system that suit in between evolve the bank and the vintage apps and their users. There's up to potentially ten million users impacted by the failure of synapse, over a hundred different fin tech platforms. Some of the leading platforms include juno ytd, both which had over million dollars in customer assets with syn naps or at least tracked by synapse as part of the trust tee, reports.

Jelen Williams, in looking at synapse, found that the company use multiple partner banks and would use different banks for the same client for different services, so the withdrawal might happen with with one bank deposit with another. They also used what are known as F, B, O funds. So for benefit funds, syn naps had two types.

They had D, D, S, or demand deposit accounts. And those are are fairly simple because they were in the name of the user of the APP. And most of those funds have been returned.

The chAllenging ones are the F, B, O fans for benefit up, because those are held in the name of synapse, not the end client. And the only one the organization that knows whose money is who was synapse. Unfortunately, snap laid off other people on may twenty four, twenty twenty four, particularly two individuals that understood how synapse is accounting was done and they're not responding to trusty request.

And so Michelle am basically said, bank partners figure IT out, try to do this grand reconciliation to see who is, who do what in, who should the money go to. And so the banks started doing the reconciliation, and IT turns out there was about a ninety million dollar cash shortfalls with the reconciliations that they could do, but they couldn't all do that. Before we continue, let me pause and share some words to one of this week.

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accounts. The chAllenges are the f. Bo accounts. One of the bank is the american bank. They held only forty three thousand dollars. They don't see any shortfall, but american bank says there o two point three million from the other part banks for unsettle debit card transactions.

AMG has about sixty million dollars of F, P, O funds and one hundred and fifty thousand dollars of unallocated interest payments are not sure what to do with if all bank and trust hasn't completed its reconciliation yet. These are the f bo funds, so I can't confirm if there is a shortfall. But based on the trustees reconciliation work, they should now believe that there's somewhere between sixty five and ninety six million dollars short for potentially missing money.

Now IT could be double counting reconciliation, but here's the chAllenging part. The going right, whatever shortfall the partner banks are unable to reconcile is most likely unreconcilable ble without far more extensive efforts, expense and technical expertise, which would require resources that the estate does not have sync has no money to pay forensic accounting firms to try to figure out the synapse accounting systems. Gyms continues.

Even if these efforts could be undertaken full, reconciling ation to the last dollar with the synapse leger and the fin tax partners ledger may not be possible. Now it's possible that this shortfall relates to a dispute between signals in one of their former clients, mercury. This is a fin tech financial services firm.

The largest client for API decided that they wanted to go directly to evolve bank intrust and terminated the relationship with synapse in, which is one of the reasons that contributed to their synapse as bankrupcy, snap and mercury were in a legal dispute based on potentially missing funds. Meanwhile, the then users are upset at the fin tech platforms is upset. Do you know the savings? APP, in a statement, said, this has been incredible, difficult and frustrating for us as well as the entire team who has been in the cross hair between synapse and evolve bank and trust.

So here we have a we have sensually a middle are company providing bank as a service to pinted platforms, connected them with partner banks. But much of the accounts were held in the name of synapse, and meaning synapse was the only one that could reconcile who oes what to who. And an other employees were there.

And nobody understands the accounting system that they use. IT was sort of LED the Brookside with with the savings website and its a complete biocon tic mess. What can we learn from this? How do we not get our saving stuck in this type of situation? Back in episode twelve, we did an episode on how to invest cash savings, and we outline different options.

We're going to take kind of a different lens here. The first thing that we should ask is, is figure out what kind of entity is this. There's a new flash savings APP.

It's promising a high return IT might be suggesting that the deposits are insured by the government. Our first responsibility is to understand is this a bank is the APP owned a bank. There's that bank of publicly available financial statements and fdic protection.

One of the entities that we discussed and up for twelve was markets. Bank markets is owned by goldman. And if you go for any, this actually have to go to the foot t note on the first page on the home page, and they'll be disclosures there.

So in the case of markets, IT as markets by golden sacks is a brand of government sex bank USA in government sex and company L, L, C, which are subsidiaries of the golden sex group. All loans, deposit products and credit cards are provided or issued by gold sax bank U, S, A, all like city branch member F, D, I, C. So here we know it's a bank, is a well known bank and financial services company.

The yield on their hio saving is four point four percent. Another option is ally bank. Their savings are in the footnotes says they are held by ally bank.

And remember, F, D, I, C, four point two percent year. Demand deposit deposit at commercial banks. That's private money that can I L you from the bank.

The bank doesn't have the cash. You make the digital sit. You now have a receivable from on that bank. They await to you. They are perhaps the traded entity but is not the government, which is why commercial banks are subject to bank runs.

Like we saw in episode four twenty four last march of twenty and twenty three with silicon valley bank, he was a bank that there was fear that he was going under its depositors try to withdraw forty two billion dollars in one day, twenty four percent of the bank's asset, and the fd, I, C, seize the bank. IT was a second largest bank failure in U. S.

history. And IT happen in just a matter of hours. And that's why the F D I C protection in the U. S. Is for accounts two hundred fifty thousand dollars and less. If you're above that bad, your savings are at risk unless the F D I C and the federal serve decides the bank is too big to fail and refunds that deposit above the F D I C insurance limit like they did in silicon valley. Thank but I I wouldn't rely on that.

So we want to keep our baLances under the insurance limit and if you over put IT in a different bank, but that's the safe when working with a savings APP that the APP is owned by the actual bank that paying the yellow. Before we continue, let me pause and share some words from this week. Sponsors quick math, the last your business spends on Operations, on multiple systems, on delivering your product or service, the more margin you have and the more money you keep.

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Had a net sweet that comes less David, that's net sweet, that comes less David, net sweet that come slash David. The second option is what's known as a new bank. This is typically just A A financial technology company of in tech company IT probably doesn't have branches.

Digital only technology focused could have a really slick APP. The fees are typically less if non existent, and they're promising to a higher yields. In november twenty twenty two, we had a new sponge to our show for just one episode.

They approached to me, IT was a bank. The name was copper. They had an APP. They were teaching children and teens healthy financial habits. But you could get a personal debit card.

There was a savings component, but this turned out to be a neo bank that had banking partners. And they use synapse for a portion. In the case of copper, turned out the only heads around six thousand dollars caught up in this mass.

Copper was launched four years ago. They raised twenty nine million dollars and twenty and twenty two, and they have now stepped away from banking. They're not doing debit cards.

They are not taking saving account now they're trying to have earn APP and they are trying to partner directly with banks. In retrospect, CT, given some of the risk we understand now with these new banks, we probably shouldn't have taken them on as a sponsor for that one episode. Copper CEO edi bearing er said we learn that the banking middle provider we utilize is sunsetting their services imminently.

This was back in may. Despite our prior planning, this event has forced us to closed banking accounts much sooner than anticipated. So they were a user synapse, but their account baLances with evolve trust to the other partners was much less for a eo bank is also very important to look at the footnotes who are the banking services provided by.

Often times there isn't A A disclosure regarding some type of middle are company, but PS IT requires a phone call. But just be be more aware if the savings APP, even if IT is fd I C insured by a bank, that if it's not the bank itself that owns the APP, that the problems that we're seeing with synapse that yeta seeing juno eeta that can happen and it's one of the risk. The third then is even more risky.

It's an APP that's not a bank at all. And sometimes the disclosures are incredibly confusing back and upset for twelve, we talked about the digital mortgage lender tellis APP that they raise sixteen million dollars from a sixteen z in seed funding, tell us has offered higher savings accounts. And they have been incredibly opake on both how their business model works and in the early days, what's fc ensured.

And and I gave some examples of that in this earlier episodes. For example, there's y're promising to pay ten to twenty times rate to other hio savings accounts, but then they would on their website back in the day they would post to tell the savings APP compared to markets. And others gave the impression that tell us was a bank, but it's not now.

The F, D, I, C, according to barren, has issued warnings to tell us about their disclosure policies and they're done IT to other companies. In march, the F D I C sent demand letters of three companies in the fin tax base for making false or misleading representations about depositions. One was a very star marist AR.

I wasn't for me with that, but on their web said they mention highest savings apps, and apparently before the F D I C warning, they sets the things like higher certificate deposit program, are F D, I C insured and there are no maximum counts and all are fully ensured by the fdc. At all times, some of the testimonials said everything was fit. In short, another company that got a warning letter with prize pool, their disclosures said, your deposits are held and protected by our partner bank, evolve bank contrast member F D I C and a short up to five hundred thousand dollars.

Well, that's not right. F insurance is only up to two hundred fifty thousand. So it's a complicated thing given all of these fin tech platforms and the desire of thanks. According to payments intelligence, they did a survey this past summer.

Sixty five percent of banks and credit unions have entered into at least one fin tech partnership in the past year, and ninety five percent of banks have focused on using this partnership to the deposits to help provide loans. And so this isn't going away, which is why as users, we have to be very ware of what's going on. Larsam c neo, whose cohered of marketplaces in digital ecosystem, said, with the complex ecosystems, you have a high number of partners, then you may have historical had in the past.

You've got to understand your industry and the various players in the ecosystem now, in this case, are talking about the fin tech platforms, the banks, and then we have us as consumers. IT is an evolving complex environment. F, D, I C issued warnings to numbers this month during twenty twenty four, and they mentioned F, T, I C deposit insurance is not protect against the insurance y or bankrupt of a non bank company.

In such cases, while consumers may be able to recover some or all of their funds through an insolvency or bankrupt proceeding often handled by court, such recovery may take some time. As a result, you may want to be particularly careful about where where you place your funds, especially money that you rely on to me to regular day the day living expenses. The couple uh, responses from redit.

The concern there is that their core savings that they needed to pay their mortgage taxes were in a savings APP that wasn't a bank and wasn't owned by a bank. Now the deposits may ultimately have been in a bang, but if there was an fb o deposit or benefit of so that and bank didn't know whose money IT is and they're still trying to reconcile whose money that IT is because synapse is the one standing in the middle doing all the accounting. That's a major risk, which is why we need our critical cash, easily accessible, very liquid, maybe ten of money market me to fund that you can access IT in the government in the past has backed stopped retail money market commuter funds protected them in the time of crisis.

But when IT comes to private money in the these private companies, we need to be very aware. Now there's all the things we look at. What is the interest rate and what is that interest rate compared to for a traditional bank and neo bank, or some type of thing, tech platform? What type of additional risk are we taking organization risk to get an extra half percentage points?

What are the fees we need to really understand how the F D, I, C. Insurance works? Is IT a bank? Is that a neo bank? Or is that somebody acting like a bank we're not comfortable with those disclosures with?

Tell us I did an episode three or four years ago for our premium members of money for the rest of us, plus on some of the issues we saw, we tell us, we tell us if you invested something like that, he was critical to under stand. Where is the money in that? In their case, the money wasn't even going to a bank. Maybe this proportion was, but most of the funds were being invested in mortgages with, tell us in between he was an unsecure ly city intel us.

Similar situation that we had with peer street, which we discussed last year, crowd funding platform that would bankrupt and IT appears that in that situation, those holders investors that had these mortgage dependent notes because peer story was lending to home flippers that were fixing of home selling them, but peer street had the mortgage with those barriers, but the founders of those loans for individuals and all they had was a mk. Mortgage dependent note. The mortgage payment would pass through peer tree bad.

Those note holders had an unsecured liability with peer street, and peer street went bankrupt. And it's been about a year and those funds have not have been returned yet to the holders of the notes. In the bankrupcy proceeding, they agreed that as the notes mature, payments are made, they would go to the end users, but also the fees associated with the bankrupt y would be taken out of those basically proceed from those that interest in principal receivable.

So IT takes a long time to work these things out is why we need to understand. The model, if it's not held at a bank, how are you generating these higher yields we've seen in the crypto lending space where a black fire when bankrupt and others so we can just get attracted by the yield. How much risk are we taking further yield.

And much of the risk is how it's invested, but also it's the platform risk. It's the risk the sponsor of the APP goes bankrupt or one of the principal midwood companies associated with the APP goes bankrupt like we're seeing with synapse. So diversify into different options with different levels of risk.

The easiest is to keep with the bank for your higher eld savings APP or its in treasury bills or something like A A money market mutual fund for the most liquid saving that we need for other savings. We can take additional risk, but we can't confuse cash savings programs that are promising a very high yield as being risk free. We need to understand with this organization risk, the platform risk, the investment risk is before we jump in and get attracted by a slick APP in a high yellow.

That's our discussion on navigating investing in cash save exams using banks, news banks and fin tech platforms. Thanks for listening. You may be missing some of the best money for the rest of us content. Our weekly insider guide de email newsletter goes beyond what we cover in our podcast episodes and helps elevate your investment journey with information that works pressed in, written in visual formats.

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