Another fintech startup, and its customers, has been gravely impacted by the implosion of banking-as-a-service startup Synapse.
Copper Banking, a digital banking service aimed at teens, notified its customers on May 12 that it would be discontinuing bank deposit accounts and debit cards on May 13. In a letter to customers, CEO and co-founder Eddie Behringer said the company had learned the previous week that the banking middleware provider they used, Synapse, was sunsetting its service “imminently.”
“Despite our prior planning, this event has forced us to close banking accounts much sooner than expected,” he wrote.
Synapse filed for Chapter 11 reorganization bankruptcy on April 22 with plans to sell its assets to TabaPay for $9.7 million. But that sale fell through and last week a United States Trustee filed an emergency motion asking the judge to convert to a Chapter 7 liquidation bankruptcy due to Synapse “grossly” mismanaging its estate.
The discontinuation of Copper Banking’s bank accounts and debit cards means that some Copper customers do not have access to their funds. Behringer says that it is working with its banking partners, AMG National Trust Bank and Synapse, to return money to customers as soon as possible.
Behringer said that as soon as it heard the news that the TabaPay deal was in jeopardy it began returning customer funds, so only a small, single-digit percentage of its customers did not receive their funds before the service was shut down. (My family is one of those customers.)
Copper now has plans to offer a white-labeled family banking product later this year in partnership with “large banks across America,” which Behringer told TechCrunch in an interview he could not yet name. The company had been planning to move in that direction over the past year, he added, but the process was accelerated due to Synapse’s demise.
Copper remains operational, providing its direct-to-consumer financial education product, Earn, to customers, according to Behringer. Earn pays teens credits to play games, take surveys, scan receipts and refer friends; once users hit a certain threshold of credits, they are paid cash for them (500 credits for $5), it says. The goal is to teach kids about finance. It earns money through that by partnering with other institutions.
That product, he said, launched just under one year ago and has seen 160% year-over-year revenue growth. It has since provided the “majority” of Copper’s revenue as the company makes money through partnerships with brands that want feedback on their products. The 30-person company remains intact, Behringer said, and is still hiring.
He claims that because Earn’s growth is so strong, Copper is still “on track to near profitability this year” and, in addition to the cash it raised from its VC fundraising, has “well over four years of runway.”
In April 2022, Copper raised $29 million in a Series A funding round led by Fiat Ventures. It has raised a total of $42.3 million since its 2019 inception. Other backers include Panoramic Ventures, Insight Partners and Invesco Private Capital. At the time, the company had said it made its revenue primarily from interchange fees.
AMG National Trust Bank and Synapse could not be reached for comment at the time of publication. Apparently, Copper’s customers may not be alone. At an emergency hearing last week, as reported by Forbes, a U.S. bankruptcy court judge described Synapse’s troubles as “a situation where tens of millions of people do not have access to potentially hundreds of millions of dollars of their deposits.”
And Fintech Business Weekly’s Jason Mikula reported after Friday’s bankruptcy hearing, “Numerous end users of fintechs that have had their ability to access their funds frozen shared the devastating impact it has had on their lives with the court and the hundreds of attendees dialed in to the hearing.”
Copper’s problems might be another example in a trend of consumer fintechs shifting to B2B. Earlier this year, TechCrunch reported that Miami-based Onyx Private, a Y Combinator-backed digital bank that provided banking and investment services for high-earning millennials and Gen Zers, had also terminated its consumer bank operations. It said at the time it would be shifting to a “B2B white-label platform-as-a-service model for community banks, regional banks, and credit unions” that want to launch digital apps built for young affluent consumers.
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