Thousands of users were locked out of their bank accounts by “fintech” apps that promised to save them money with automatic budgeting, CNBC reports. A financial mediator called Synapse collapsed recently, causing over 100,000 Americans to lose access to more than $265 million. About 85,000 were customers of the app Yotta, according to its co-founder Adam Moelis.
Yotta is a banking platform that allowed users to have their wages directly deposited into the app and supplied them with a debit card to which they could charge all their expenses. It made budgeting “fun” for users, entering them into sweepstakes and sometimes covering expenses.
A fan of the app, Natasha Craft, was contacted by CNBC after the network learned her life savings ($7,006) were locked away due to an ongoing fight in bankruptcy court that also involves platforms like Reddit and regulatory offices.
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Craft is now 25 years old and works as a driver for FedEx in Mishawaka, Indiana. When she first started using Yotta, she was inexperienced with finances and had to plan a wedding. The app was a way for her to have fun while learning to save.
“There were times I would go buy something and get that purchase for free,” Craft said.
Yotta was one of many apps in the industry, although it is said to have been the easiest and most fun to use and was supported with government-backed accounts at legitimate banks. The tech companies all boasted that they had protection from the Federal Deposit Insurance Corp. (FDIC), which claims that no depositor “has ever lost a penny of FDIC-insured deposits” since its creation in 1934. But Yotta and a bevy of other startups and banks involved in the system have cast a shadow over fintech.
Since it wasn’t an accredited bank, it had to rely on the Tennessee-based Evolve Bank & Trust to be able to grant checking accounts and debit cards. Mediating between Evolve and Yotta was Synapse, which tracked balances, looked out for fraud, and helped the start-ups gain access to the banking industry.
Synapse had contracts with roughly 100 fintech companies and 10 million users, according to a court filing in April.
Shane Devine is a writer covering politics and business for VT and a regular guest on The Unusual Suspects. Follow Shane’s work here.
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