What Happens When Your Bank Isn't a Bank and Your Money Disappears?

https://www.nytimes.com/2024/07/09/business/synapse-bankruptcy-fintech-fdic-insurance.html

by gnicholas • 2 years ago

55 49 2 years ago

nytimes.com

Night_Thastus• 2 years ago

And it's gone!

southernplaces7• 2 years ago

Wonderful bit of cultural context.. https://www.youtube.com/watch?v=-DT7bX-B1Mg

gumby3• 2 years ago

I'm considering using Mercury,* which is allegedly quite popular with startups. They do have all the usual KYC etc of a bank.

Like the ones discussed in the article, Mercury also keeps customer funds in Evolve, among other banks (I guess they claim to spread your money around so you don't have more thank 250K in any one basket). So if I understand correctly, the problem is that I have no visibility to the back end, so if Mercury keels over I'll have trouble getting my money?

* I used SVB for 25 years, but over the past few years their service declined and First Republic poached a lot of their good guys, so I switched to FRB. With a track record like that, perhaps Mercury should reject me?

gnicholas4• 2 years ago

I wondered about this also. Seems like the virtualization that allows for spreading risk also introduces opacity, and risks of its own.

In another article currently being discussed, [1] Mercury has said they may be affected by a breach at Evolve. Yikes.

1: https://news.ycombinator.com/item?id=40916260

jellicle2• 2 years ago

"Mercury is a fintech company, not an FDIC-insured bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust ®; Members FDIC. Deposit insurance covers the failure of an insured bank." - from their website

What they're trying to say here is YOU ARE NOT INSURED IN ANY WAY IF MERCURY STEALS YOUR MONEY.

I hope this makes it more clear to you.

gnicholas4• 2 years ago

But if the money is deposited in an FDIC-insured account and is stolen (by an external hacker or Mercury) isn't it insured against that loss?

alephnerd4• 2 years ago

Have you considered JPMC?

FRB's tech portfolio and team is now part of them, and a number of SVB accounts ik of move there as well.

gnicholas4• 2 years ago

Do they offer the sort of cash management that is Mercury's hallmark?

Separately, I have heard a lot of bad things about Chase, and experienced some as well over the years. I'd be hesitant to open up an account there from a customer service perspective, although I assume the deposits would be safe at such a large mega-bank.

gumby3• 2 years ago

JPMC bough First Republic and already I’m ready to leave. Fees are high and many, and there’s no direct relationship like there was with SVB or FRB. Just a call center.

hodgesrm• 2 years ago

My company uses Brex among others. They do nightly sweeps into a set of partner institutions on your behalf. In theory means you are covered for $250K * number of banks, but the scheme is pretty opaque. It's also untested by a real failure as far as I can tell. The best mitigation is to spread accounts across multiple institutions.

p.s., Brex works fine for day-to-day transactions like AR, AP, and Payroll. We've been quite happy with it, but these days you can't fully trust any financial institution.

jjwtieke• 2 years ago

http://archive.today/LWmgP

jellicle2• 2 years ago

In a properly regulated world, all of these clowns would be shut down today and some of them would go to jail.

Instead we do no regulation, these "not-banks lying and claiming your money is safe" get to harm a lot of people, and the public further loses trust in everyone involved.

To anyone reading this who has money in any business that claims not to be a bank but instead your money is super-safely stored in a real bank somewhere and so there's no risk to you: run away, run away fast. Get your money out and close your account. You're in a Ponzi scheme and you don't realize it.

imtringued2• 2 years ago

In a properly regulated world, everyone would have some sort of personal insurance for counterparty risk. You pay $x per year and the government never steps in.

FDIC is a moral hazard in my opinion. The only thing the government should do is let people with low incomes claim their money back in advance so that they can pay their bills.

bodhibyte• 2 years ago

Both Wealthfront or Betterment are not banks but offer high-interest cash accounts that are FDIC insured. I've been curious what would happen if your money disappears from one of these high-interest cash accounts since they are technically not banks.

bormaj• 2 years ago

Reading through Betterment's disclosure acknowledges the scenarios for potential loss. While the deposits are stored through their program banks, you're guaranteed up to $2mm in FDIC insurance. So if those banks go under, your money is as safe as it would be anywhere else.

What I did not know is that FDIC insurance doesn't apply while money is being _transferred_ between accounts (SIPC insurance apparently applies here).

goldfishgold• 2 years ago

Neither Wealthfront nor Betterment appear on the FDIC’s own list of insured institutions, so my guess is that if something wrong your money could disappear between the cracks, as in the example in the article.

https://banks.data.fdic.gov/bankfind-suite/bankfind

snotrockets4• 2 years ago

There are very strong guarantees of that not to happen.

Wealthfront and Betterment are tiny compared to others, but share the same field with the big players who have interest to not make people scared shitless.

It is the fast and loose, innocent because proving guilt is an effort, fintech I am sacred of: crypto, binary options etc.

bequanna• 2 years ago

Wealthfront partners with Greendot. I believe deposits are FDIC insured thru Greendot.

https://support.wealthfront.com/hc/en-us/articles/3600441608...

m463• 2 years ago

People conflate legal tender/money/currency/stock/accounting unit/medium of exchange/digital token/etc...

ljsprague• 2 years ago

I keep my money in a bank bank and ~30% of it has disappeared in the last few years!

genewitch4• 2 years ago

more than 50% since 2010 or 2012, iirc, but this only tells the official story.

when a "99 cents!" bag of chips is now "$2.99 only!" and the price of fuel doesn't correlate to anything except oil company P&E charts...

Just remember, The "$6 burger" was both making fun of the fact that restaurants charged $6 for a hamburger, as well as less than $6 for the entire meal (usually ~$4 al a carte). That food place ceased offering the $6 burger when the meal went over $8, and that was over a decade ago.

I got quoted out $1000 for 200 feet of garden hose from a hose supplier last week. meanwhile the state government has only given ~6% pay increase in the last decade to civil employees. in the last 12 years i've reduced my electricity usage by 60% by both moving high power stuff to a cheaper facility and buying more energy efficient appliances and such. My electric bill is the exact same (plus or minus 10%) as it was 12 years ago.

I could go on comparing what things used to cost to what they cost now (if you can even get them at all), and my spreadsheet says the "inflation" numbers we're given either are flat out lies or otherwise so misunderstand what people spend money on monthly that it may as well be a lie. Compare a 198X Ford Mustang 6 cylinder base model to any year model you please. Then convince me that moving from metal to plastic and computerizing everything so the wires can be much smaller somehow justifies the price hike, there.

p.s. don't do this with rent or mortgages unless you want to cry.

HeyLaughingBoy2• 2 years ago

$1000 for 200 feet of garden hose

I know it's not really your point, but what kind of hose? I bought 100' of 3/4" "contractor" hose from Tractor Supply this last winter for $79. Even the in-ground stuff doesn't cost that much.

fragmede2• 2 years ago

That whole safety thing probably increases the price a lot. Like crumple zones and airbags. Also what's the zero to sixty and quarter mile on a 1985 Mustang compared to a Honda Civic from today? Also how long did it last between oil changes, how many MPG did it get, how much routine maintenance did it need; etc, etc.

The 1985 Ford Mustang was an amazing feat of engineering - for its time. We're 40 years past that though, and cars are more expensive for a lot more reasons than just plastic. Nevermind the plastic, the metal used in today's cars didn't exist as little as 10 years ago, never mind 40.

digital-cygnet2• 2 years ago

I see this view a lot, but every time I look at the actual data it isn't borne out.

BLS official inflation: $100 in Jan 2010 had the purchasing power of $144.94 today. That works out to 2.6%/yr by my math. So that's the "official" number that we want to disprove

Gallon of gas: $2.77 in 2010, $3.20 in Jan 24. 15% increase, 1% annualized

Honda Civic [not doing Mustang because it's harder to find data and as a luxury vehicle the comparison isn't as clean]: $16,205 in 2010, 24,000 today. 50% increase, 2.8% annualized

Big Mac: $3.73 in 2010, $5.69 today. 52% increase, 3% annualized

I live in an HCOL area, and did in 2010, so both of these sets of numbers feel a little low to me, but they mostly match my experience. As far as I can tell inflation mostly matches what the government reports, with some sectors coming in under and theoretically balancing out those that come in over (the classics of education, medicine, and housing). Those sectors that are outpacing are a real problem! But I think the consumer goods shadow-inflation people complain about is not borne out by data.

CPI: https://www.bls.gov/data/inflation_calculator.htm?mf_ct_camp...

Gas prices: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=e...

Civic: https://www.kbb.com/honda/civic/2010/ (original MSRP in Pricing section) and same URL ending in 2024

Big Mac 2010: http://www.maxi-pedia.com/big+mac+index+2010

Big Mac 2024: https://www.statista.com/statistics/274326/big-mac-index-glo...

imtringued2• 2 years ago

Not it hasn't. It is still there and you decided to keep it there.

FateOfNations• 2 years ago

I was reading through the Synapse bankruptcy court filings, and oh jeez, is this a mess:

Synapse often used multiple Partner Banks to service different functions for the same Fintech Partner. In certain instances, end user deposits through a Fintech Partner were deposited in an account at one Partner Bank, while end user withdrawals through that same Fintech Partner were processed from a different account at a different Partner Bank. This business model makes it both essential and difficult to reconcile transactions and ensure end users receive access to the correct amount of funds due to each end user.

https://www.courtlistener.com/docket/68458190/synapse-financ...

This fintech product model, with multiple intermediaries and service providers between end users and the depository banks, is a house of cards. Is running your bank-like financial services product as an actual bank that hard? These technology companies seem to want all the upsides of being a bank, with none of the responsibilities.

From my perspective, the big gap is that these depository banks aren't maintaining the customer and transaction data for the beneficial owners of the money they have on deposit. They seem like they should be the ones ultimately responsible for safeguarding the customer's funds. In the middle of this, the Federal Reserve dropped this gem about KYC non-compliance for one of the banks involved, swearing that it has nothing to do with the Synapse bankruptcy.

https://www.federalreserve.gov/newsevents/pressreleases/enfo...

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What Happens When Your Bank Isn't a Bank and Your Money Disappears?

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