Fintech Business Podcast

In this episode, I had the chance to sit down with an OG of fintech who really needs no introduction, cofounder and CEO of Affirm and PayPal Mafia member Max Levchin. Max and I had the chance to discuss:

* How Affirm designs its systems and processes to mitigate third-party risks, including service interruptions and, yes, data breaches

* How Affirm thinks about selecting its bank partners and how it works with them to meet regulatory and compliance expectations

* To what extent political and regulatory uncertainty impacts how Affirm approaches running its business

* The CFPB’s interpretive rule that treats pay-in-four buy now pay later as a “credit card” for certain purposes under TILA Reg Z

* Affirm’s recent earnings announcement

* And Affirm’s recent launch in the United Kingdom

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With the Synapse bankruptcy case seemingly nearing some kind of conclusion, impacted end users are left wondering, will they ever get their money back?

While, at this point, Synapse cofounder and former CEO Sankaet Pathak can’t really answer that question, he is able to provide greater context on what happened and why.

In this podcast, recorded as a X (formerly Twitter) livestream yesterday, November 11th, I had the chance to interview Pathak and impacted depositors had an opportunity to ask him questions directly.

Key takeaways I had from the conversation include:

* Pathak revealed that Evolve had sent him a cease and desist as a result of him posting what he says is an anonymized version of the trial balance report of the funds Evolve held for end users.

* A description of the process by which Evolve prepared and sent files to Synapse for reconciliation, including a possible reason why balances between Evolve’s systems and Synapse’s appeared to varied substantially day to day, and Evolve’s claim that this wasn’t something to worry about, Pathak said.

* Pathak said that Evolve was aware of and acknowledged that fees owed to Tabapay were improperly debited from customer funds, but that Evolve disputed whether it was the bank’s fault.

* Synapse didn’t want Synapse Brokerage to contract with Evolve or keep the Brokerage’s funds at Evolve due to the known shortfalls, Pathak said.

* The plan with the Brokerage structure, per Pathak, was that incoming funds would land in users’ DDA accounts at Evolve, a portion of those funds that users would transact with would stay at Evolve, and the rest would be swept out to AMG. However, Pathak says, in late September or early October 2023, Evolve, without explanation why, ceased processing sweeps out of Evolve to AMG.

* Pathak described how Evolve’s reversal of position on funding the FBO shortfalls led to the collapse of the deal for Tabapay to acquire Synapse’s assets and, ultimately, the collapse of the company and freeze of end user funds.

* Pathak acknowledged taking two loans from the company, one in late 2023 and one in early 2024, which totaled $320,000. The transactions, Pathak said, were approved by the Synapse board — though, at the time, the board consisted of Pathak himself, a seed round investor that, and a Synapse cofounder. While Pathak didn’t name specific individuals, per filings in the bankruptcy case, the seed investor is Doug Marchant and the Synapse cofounder is Hilary Quirk. Pathak declined to elaborate on the purpose of the loans, besides saying he had “good reasons” to do it, which would “become obvious” relatively soon.

* Full reconciliation should be possible, Pathak said, but it would require the right data, resources, people, and time.

* Pathak acknowledged anonymously leaking a letter that Synapse had sent to Evolve to me (which I suspected at the time but didn’t know until now.)

* According to Pathak, Synapse’s board of directors, which, at points, included Andreessen Horowitz’s Angela Strange, Trinity Venture’s Schwark Satyavolu, and Core Innovation Capital’s Arjan Schütte, was broadly aware of the issues Synapse faced, that they were “trying to do the right thing,” and that the board ask Pathak “not to shut down and escalate.”

* While Chapter 11 trustee McWilliams and Judge Martin Barash have made numerous references to not being able to confirm or deny if they have made any referrals to law enforcement, Pathak said that he is not aware of any criminal investigation and has not been contacted by law enforcement authorities, though he did acknowledge speaking with broker-dealer self-regulator authority Finra.

* When asked if, in the regular course of its business, Synapse had any interaction with Evolve’s regulators, the St. Louis Federal Reserve or the Arkansas Department of Banking, Pathak indicated that it did not.

Additional Context & Fact Checking

* Pathak suggested that Evolve or others not suing him for defamation should be interpreted as a sign that he’s telling the truth. However, Evolve has explicitly stated that it believes Pathak’s claims about a shortfall of end user funds and the causes of it are “based on ledgers that are demonstrably inaccurate and that his company prepared” (see FAQ #17 here.) It’s also worth noting that Evolve may have other reasons to avoid filing such a suit against Pathak — namely, that Evolve would presumably have to turn over relevant documents as part of discovery in any such suit.

* Pathak said that Synapse launched the brokerage sweep program in October 2023, in response to Evolve raising Synapse’s reserve requirement and withholding interest payments owed to end users, fintech programs, and Synapse. However, the Synapse Brokerage entity had been up and running for sometime by this point, and Synapse had been working with many of its programs to migrate them to the new structure since significantly earlier in 2023.

* Asked directly if Pathak or Synapse ever inappropriately used end user funds, including using end user funds to meet bank reserve requirements, Pathak said he was not aware of any instances of customer funds being misappropriated. Pathak described the allegation that Synapse used customer funds to meet reserve requirements at Lineage as “factually false.” However, Pathak’s answer glosses over that it was Synapse that would have instructed from Evolve to Lineage and, per my prior reporting, represented that these were Synapse’s own funds, not end users’.

* Pathak also denied that Synapse knowingly allowed fees Synapse owed to be debited from end user funds, saying that, as soon as such issues came to the company’s attention, it alerted Evolve and worked to fix them. However, Pathak did not specify if when these types of issues occurred, whether or not end user balances were made whole.

* Asked about his robotics startup’s attempt to raise funds and purported relationship with GM, first reported by me and subsequently confirmed by CNBC, Pathak described the CNBC reporter as “a piece of s**t” and “highly unethical,” alleging that the reporter contacted an auto industry union leader, not GM, leading the union leader to threaten a strike if GM didn’t pull out of the deal. However, the CNBC piece quoted a GM spokesperson as saying, “GM has never invested in Foundation Robotics and has no plans to do so. In fact, GM has never had an agreement of any kind with the company. Any claims to the contrary are fabricated.” GM sent me a statement to the same effect.

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Alex Johnson, creator of the Fintech Takes newsletter, and I are happy to bring you the latest episode of our monthly podcast, Fintech Recap, where we unpack some of the biggest stories in fintech, banking, and crypto.

This month we had the chance to talk about:

* A return to BaaS Island: the FDIC’s proposed “Synapse Rule,” Five Star Bank quits BaaS, and the evolving (ha) economics of partner banks

* The CFPB accepts comments on FDX as standard-setting organization for 1033 open banking

* Department of Justice sues Visa, alleging it has used anticompetitive business practices to maintain an illegal monopoly on the US debit processing market

* …and, as always, what Alex and Jason just can’t let go of

Are you attending Money2020? Alex and I will be joining Simon Taylor for an invite-only session on “How to Win At Embedded Finance,” sponsored by Sardine, Sonar, LoanPro, and Visa — more info here.

If you enjoy listening to this podcast and find value in it, please consider supporting me (and finhealth non-profits!) by signing up for a paid subscription. It wouldn’t be possible to do what I do without the support of listeners like you!

In this episode, I had the chance to sit down with James Doherty, the Head of Business Development for Financial Services at Sinch, the customer communication cloud platform that includes mobile messaging, voice, email and other emerging channel capabilities. We had the chance to discuss:

* Financial services’ key “jobs to be done” via communications channels, including acquisition, engagement, retention, and fraud prevention

* The importance of flexibility in communications strategy, including being able to meet customers where they are, whether that’s SMS, email, or emerging communications channels

* Challenges in managing communications strategy, including privacy regulation

* The role of conversational AI in customer communications strategy

* And more!

Existing subscriber? Please consider supporting this newsletter by upgrading to a paid subscription. New here? Subscribe to get Fintech Business Weekly each Sunday:

In this episode, I had the chance to sit down with Michael Nicklas, Managing Partner at Valor Capital Group, a Brazil-based cross-border venture fund. Valor’s fintech and crypto portfolio companies include cross-border payment and trade finance network Hamsa, crypto exchanges Bitso and Coinbase, and stablecoin infrastructure company Circle, among many others. Michael and I had the chance to talk about:

* Unique aspects of Latin American that shape the market for financial services

* The role the Brazilian central bank plays in fostering progress and innovation in financial services in the country (yes, that includes Pix)

* What Valor means when it describes its investing strategy as being “cross border”

* How Valor takes into account evolving geopolitical risks as it considers its investing approach

* And more!

Alex Johnson, creator of the Fintech Takes newsletter, and I are happy to bring you the latest episode of our monthly podcast, Fintech Recap, where we unpack some of the biggest stories in fintech, banking, and crypto.

This month we had the chance to talk about:

* The launch of Klarna’s bank account gift card

* Affirm’s killer earnings

* Are niche neobanks back?

* Apple opening up NFC (sort of)

* And, as always, what Alex and Jason just can’t let go of

Also, if you’re attending Finovate next week, keep your eye out for us!

I’ll be taking the stage with some of my favorite industry colleagues, Alex, Jason Henrichs, and Kiah, to discuss the perennial topic in US fintech, banking-as-a-service. I imagine the brokered deposits topic may make a cameo.

I’ll also be attending Alloy Labs happy hour on the This Week In Fintech happy hour on Tuesday — hope to see you there!

If you enjoy listening to this podcast and find value in it, please consider supporting me (and finhealth non-profits!) by signing up for a paid subscription. It wouldn’t be possible to do what I do without the support of listeners like you!

Alex Johnson, creator of the Fintech Takes newsletter, and I are happy to bring you the latest episode of our monthly podcast, Fintech Recap, where we unpack some of the biggest stories in fintech, banking, and crypto.

This month we had the chance to talk about:

* Mercury, which partners with Evolve Bank & Trust and Choice Bank, informed users based in or with ties to certain countries, including Ukraine and Nigeria, that it would close their accounts — what’s happening and how Mercury is handling it

* Bank regulators’ request for information on bank-fintech partnerships offers clues about what the they may be worried about

* CFPB drops interpretive guidance saying earned wage access may be considered “credit” for certain purposes under TILA

* FDIC votes on rule to effectively reverse 2020’s brokered deposits rule

* And, as always, what Alex and Jason just can’t let go of

If you enjoy listening to this podcast and find value in it, please consider supporting me (and finhealth non-profits!) by signing up for a paid subscription. It wouldn’t be possible to do what I do without the support of listeners like you!

In this episode, I had the chance to sit down with Kelly A. Brown, Chairman and CEO at deposit management startup Ampersand. Previously, she spent 13 years at the American Deposit Management Company. Kelly and I had a chance to talk about:

* What inspired Kelly to get into banking

* The sudden attention paid to deposit insurance in the wake of SVB’s collapse

* How FBO and deposit insurance pass through models should be structured

* Consumers’ misapprehensions about what deposit insurance does and doesn’t cover

* And more!

Frank Rotman of QED, Jason Henrichs of Alloy Labs, and I discussed “Balancing Growth With Risk In The Post-ZIRP Era,” including touching on:

* How the extended low-interest rate environment impacted venture capital and fintech

* How the evolving regulatory climate is shaping fintechs’ and banks’ risk appetite and strategies

* What the next 12 months will look like

* And more!

Regular programming will resume next Sunday, August 4th.

Existing subscriber? Please consider supporting this newsletter by upgrading to a paid subscription. New here? Subscribe to get Fintech Business Weekly each Sunday:

In this episode, I had the chance to sit down with Wade Arnold, cofounder and CEO of Moov, a fintech infrastructure company that enables and simplifies push and pull card payments. Moov also puts on the Fintech Devcon conference, which is August 7th-9th in Austin — more info and tickets here. We had a chance to talk about:

* What to expect at (and what I should wear to) Fintech Devcon

* Payment and core banking infrastructure in the US

* Implications of and lessons from the Synapse bankruptcy

* Reasons to be optimistic about the future of fintech

* and more!

Existing subscriber? Please consider supporting this newsletter by upgrading to a paid subscription. New here? Subscribe to get Fintech Business Weekly each Sunday: