Synapse, a San Francisco-based fintech company, filed for bankruptcy six months ago, leaving customers with missing funds totaling $90 million. This incident raises concerns about the legitimacy and safety of financial technology (fintech) companies.
Fintech platforms partner with FDIC-insured banks to manage customer deposits, but they are not directly backed by the FDIC. Instead, they use FBO accounts to hold money, which can lead to issues if the middleman company fails to maintain accurate records.
The FDIC has proposed a new rule to strengthen recordkeeping practices for deposits received from third parties. However, this doesn’t necessarily address the issue of customer funds being lost due to poor record-keeping by fintech companies like Synapse.
To ensure your fintech deposits are safe, consider the following:
* Verify FDIC insurance: Check if the fintech company has partnered with a bank that guarantees your deposit up to $250,000.
* Consider additional insurance: Some fintechs offer higher insurance limits than the standard $250,000.
* Look for robust security features: Multi-factor authentication, data encryption, and fraud detection services can help protect your personal information.
* Check capabilities and ratings: Research the fintech company’s regulatory history, customer complaints, and app features to ensure it meets your needs.
While Synapse’s bankruptcy is a cause for concern, most major players in the fintech space are safe and reputable companies. By taking these precautions, you can minimize your risk when banking with a fintech company.
Source: https://finance.yahoo.com/personal-finance/banking/article/synapse-bankruptcy-fintech-safety-183845965.html