TabaPay Working On A Deal To Acquire Synapse, Sources Say
Oxygen Shuts Down Banking Services, Pivots to Healthcare; Trade Groups Sue To Block CFPB Credit Card Late Fee Rule; BaaS Platform Synctera Raises $18.6m; Are We Past "Peak Fintech"?
Hey all, Jason here.
If this week’s newsletter feels a bit light, it’s because I’m still recovering from an intense week of travel and speaking — Fintech Meetup in Las Vegas and Finnovista Connect near Cancún were both a blast, but I’m exhausted!
Fortunately, I’ll be staying put here in Mexico City for the next month or so, before heading to New York for New York Fintech Week. More details (and a discount code) for the Empire Startups Fintech Conference towards the end of today’s newsletter.
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TabaPay Working On A Deal To Acquire Synapse, Sources Say
TabaPay, a payment orchestration platform that works with clients that include Klarna, Dave, Remitly, SoFi, Upgrade, Payactiv, and numerous others, is working on a deal to acquire embattled banking-as-a-service platform Synapse, numerous credible sources tell Fintech Business Weekly.
Terms of the deal could not immediately be discerned, including whether or not TabaPay is considering acquiring Synapse in its entirety or acquiring assets through a bankruptcy proceeding, given Synapse’s potential legal and regulatory exposure.
TabaPay lists 15 bank partners, including well-known BaaS players like Evolve Bank & Trust, Cross River, WebBank, Sutton Bank, Stride, Coastal Community, Lead Bank, Bancorp, Pathward, CBW, Stride, and Sunrise.
The company leverages these bank partners to offer direct connections to 14 payment networks like Visa, Mastercard, American Express, Discover, Nacha, and The Clearing House to enable capabilities such as account funding, debt repayment, subscriptions and bill payments, B2B services, digital goods and services, and cross-border transfers to eligible card accounts.
TabaPay also lists integrations with BaaS and issuing platforms that include Unit, Galileo, and Marqeta.
If the name TabaPay sounds familiar, it may be because Synapse CEO Sankaet Pathak blamed a configuration error on Evolve’s part for TabaPay incorrectly debiting at least $12 million in end user funds, with the actual figure potentially far greater, according to a letter Pathak sent to Evolve last September.
When those missing user funds were first revealed by Fintech Business Weekly last year, TabaPay said at the time that it wasn’t aware, responsible, or involved in the issues cited at and between Synapse and Evolve Bank & Trust.
Industry sources say that investment banking firm Jefferies has been shopping Synapse to possible acquirers — including potentially through a bankruptcy process — but that no willing buyer could be found.
TabaPay’s potential acquisition of Synapse may be the last-best hope to contain the fallout and mitigate collateral damage to TabaPay, Evolve, and the banking-as-a-service and fintech industry at large.
Representatives for TabaPay and Synapse did not immediately respond to requests for comment. A representative for Evolve Bank & Trust declined to comment.
Are We Past "Peak Fintech?" Why New York Will Be At The Heart Of US Fintech’s Next Act.
Fears over the stability of regional banks are top of mind again, with New York Community Bancorp’s share price plunging as the bank increased its provisions for loan losses, slashed its dividend, and raised $1 billion in fresh capital.
It’s an uncomfortable reminder of last spring’s banking crisis, which saw Silicon Valley Bank, Signature, and First Republic fail.
While many hoped the worst was behind us, the renewed tumult has revealed ongoing challenges that have been lurking beneath the surface. Some of NYCB’s issues are idiosyncratic, but many of them are not.
The challenges posed by the elevated rate environment, uneven recovery in commercial real estate, and deposit and asset concentration are being felt by small and mid-sized banks across the country, not just in New York.
If “traditional” banks like NYCB are still navigating the impacts of successive shocks to the economy — first COVID shutdowns and work from home, then inflation and the quickest rate hiking cycle in decades — so too is the fintech industry, which went from ecstatic highs in 2021 to the depths of despair by 2023.
Like many other tech- and internet-focused industries, fintech saw an explosive surge of interest and investment during the pandemic.
Even before the COVID-era boom, venture capitalists were already bullish on the segment. It was in November 2019 that Andreessen Horowitz partner Angela Strange coined the now-cliché truism that “every company will be a fintech.”
The view that the pandemic pulled our collective digital future forward (and zero interest rate policy encouraging investors to take ever more risk in search of returns) helped drive global fintech funding in 2021 to nearly $150 billion, more than triple 2020 and more than 25 times VC funding to fintechs a decade prior.
Founders and investors hailed ballooning valuations and a swelling herd of “unicorns,” and numerous companies, many of dubious quality, took advantage of the bubbly environment to go public, many through the once-maligned SPAC structure.
But things have a way of reverting to the mean.
To combat inflation that was supposed to be “transitory,” the Fed took away the proverbial punch bowl of low rates, popping the “everything bubble” and driving a precipitous drop in fintech valuations and venture funding.
VC funding to fintechs more or less returned to normal last year, with approximately $50 billion raised globally, including Stripe’s mega $6.9 billion round.
Since January 2021, the S&P 500 is up nearly 23%, while publicly traded fintechs remain down more than 50%, according to F-Prime’s Fintech Index.
So how am I still optimistic, you ask?
Like it or not, VC-funded tech, including fintech, tends to move in cycles of boom and bust. We’ve been here before, with the most notable example being the infamous dotcom bubble and subsequent crash, in which the tech-heavy NASDAQ index gave up all the gains accrued in the frenzied runup to its peak.
While, like the dotcom bubble, fintech has seen plenty of capital deployed in support of dubious enterprises — a neobank for pet owners? an app just for paying your bar tab? — the return of financial discipline that has come with rising rates has had the benefit of refocusing investors and entrepreneurs on creating sustainable business models by delivering actual value to their customers.
And the explosion of demand from fintech startups during the boom times supported the development of new layers of financial “infrastructure.”
Companies like Plaid, MX, and Finicity that enable customers to securely share financial data and Argyle, Pinwheel, and Atomic, which serve a similar purpose for payroll data.
The rise of “banking-as-a-service,” encompassing future-forward banks and third-party technology startups, has made it easier, faster, and less expensive than ever to get a new fintech idea to market.
And government and the public sector continue to play an important role as well, with the creation of new capabilities like real-time payment system FedNow or states’ slow but steady rollout of digital driver’s licenses.
And New York City is well positioned to be at the heart of the next era in fintech.
For all the upheaval facing the world today, New York remains the global financial capital. And it has the requisite ingredients to drive creation of the next cohort of fintechs: a density of knowledge, capital, and talent, and the hard-to-describe connective tissue that brings them together.
Successful New York founders, like on-demand pay startup DailyPay’s Jason Lee, are moving on to start new companies (employee reward startup Salt Labs, in Lee’s case.)
Energetic, young teams like Knot (disclosure: I’m an investor) cofounders and brothers Rory and Kieran O’Reilly are capitalizing on local connections, raising capital from American Express’ venture capital arm and finding endless sales prospects a subway ride away.
The city is home to seasoned fintech VCs, like NYCA Partners, but also emerging investors like Gilgamesh Ventures and The Fintech Fund.
Establishment banks play a key role in supporting the fintech ecosystem, whether through investing, mentoring, or just offering a place to work, with Barclay’s Rise being a great example.
And New York boasts plentiful opportunities to connect with other industry professionals, whether at a hackathon, demo day, or happy hour. New York Fintech Week, taking place this April, boasts dozens of events with thousands of attendees at venues across the city.
So while it never feels good when the bubble bursts, I think of it as one of capitalism’s time-honored traditions: creative destruction.
Yes, some startups will fail, and some investments will be written off. But that allows resources to be reallocated to new, more productive ventures — ones that will benefit from everything the New York banking and fintech ecosystem has to offer.
Oxygen “Temporarily” Shuts Down Banking Services, Pivots To “Health Solutions”
Consumer and SMB neobank Oxygen, which announced a $20 million fundraise and appointed a new CEO about a year ago, will “temporarily” suspend its banking products amid a pivot to focus on “health solutions,” the company said in an update posted on its website.
Oxygen claims to have more than 1 million accounts and has a roster of investors that includes Y Combinator, 1984.vc, Possible Ventures, Frank Strauss, and William Hockey.
Oxygen worked with partner The Bancorp Bank to offer consumer and business bank accounts.
According to an email sent on March 8th, customers’ accounts will be closed by the end of March:
Oxygen’s next iteration, Oxygen Health, is suppose to launch toward the end of the month, though details on exactly what the offering will entail are scant.
A statement on the company’s website says, “Oxygen Health aims to disrupt the intersection of finance and healthcare by offering a direct-to-consumer model that breaks down barriers to access,” and quotes current CEO David Rafalovsky as saying, “We understand the challenges individuals and businesses face when balancing financial stability with personal well-being. With Oxygen Health, we're offering a comprehensive, affordable health plan that puts control back in your hands.”
Representatives for Oxygen didn’t respond to a request for comment prior to the time of publication.
Trade Groups Sue To Block CFPB’s Finalized Credit Card Late Fee Rule
Last week, the CFPB finalized its proposed rule to rein in credit card late fees. The Bureau described the rule as “closing a loophole” that allowed card issuers to charge excessive penalty fees for late payments.
Prior to the passage of the current rule, card late fees were regulated by rules implemented by the Federal Reserve Board of Governors pursuant to 2010’s CARD Act. Those rules allowed issuers to charge late fees in line with banks’ actual costs from late payment — but granted safe harbor for late fees up to $25 for cardholders’ first late payment and $35 for subsequent late payments.
The Fed rule permitted those amounts to be adjusted annually for inflation, with typical fees reaching $32 for first late payments and $41 for subsequent late payments, despite, the Bureau says, issuers transitioning to “cheaper, digital business processes” that should lower the actual costs issuers incur because of late payments.
The new CFPB rule, which applies only to issuers with more than 1 million accounts, will lower the safe harbor amount to $8, which, the Bureau says, is sufficient for large issuers to cover the costs associated with late payments. The rule would cover accounts associated with more than 95% of outstanding card balances. The updated rule would also end the automatic annual inflation adjustment.
It’s worth noting the new rule does not prohibit large card issuers from charging more — if they are able to demonstrate higher fees are necessary to cover actual costs.
The rule does not impact issuers’ ability to change interest rates, reduce credit lines, or take other actions to discourage consumers from paying late.
The CFPB estimates the new policy would reduce large issuers’ aggregate late fee revenue from about $14 billion a year to $4 billion, saving consumers some $10 billion annually.
Unsurprisingly, large credit card issuers aren’t thrilled with the new rule.
The US Chamber of Commerce, Consumer Bankers Association, American Bankers Association, and other industry trade groups filed suit against the CFPB in the US District Court for the Northern District of Texas seeking to block the rule from going into effect.
The groups argue that, by limiting late fees, the CFPB is discouraging responsible credit card use and limiting choices in card options and benefits. Specifically, the group’s case argues that:
the Bureau’s actions violate the CARD Act by preventing issuers from collecting reasonable and proportional fees for late payment
the Bureau’s actions violate the Administrative Procedure Act, as the rule is arbitrary and capricious in its reliance on incomplete and non-public data to estimate issuers’ costs
the Bureau’s actions violate Dodd-Frank, by not adequately considering costs to consumers, including reduced access to credit
and that the rulemaking was issued with funds drawn in violation of the Constitution’s appropriations clause
Banking-as-a-Service Platform Synctera Raises $18.6 Million In Series A Extension
Frequent readers will know I rarely cover fundraise news, as it is generally well covered elsewhere.
But, given the ongoing turmoil in the banking-as-a-service space, it’s worth noting Synctera’s announcement of an additional $18.6 million in funding, led by Fin Capital and Lightspeed.
The news comes about a year after receiving a $15 million strategic investment from the venture arm of the National Bank of Canada and launching with its first Canadian customer in December 2023.
According to the company’s release, it grew annual recurring revenue (ARR) by 4.5x last year, while more than doubling its number of customers and increasing spend on its platform by 20x.
NY Fintech Week: Back to BaaSics
I’m still recovering from Fintech Meetup and a quick swing through Cancún to speak at Finnovista Connect, but that doesn’t mean it’s too early to think about the next fintech event — New York Fintech Week.
I’ll be joining Neepa Patel, founder and CEO of Themis, on stage at the Empire Startups Fintech Conference for a masterclass session on getting “Back to BaaSics” — truly a can’t miss if you sit anywhere in the fintech/banking ecosystem.
Use code “BaaSics15” to get 15% off your ticket today:
Other Good Reads
The Chair and the Vice Chair for Supervision (Bank Reg Blog)
The Youths Have Spoken: Wallets Are Uncool. Go Digital. (New York Times)
The Evolution of Entrepreneurship (Fintech Takes)
Moody’s, the 115-Year-Old Growth Company (Fintech Brainfood)
Listen: Capital One/Discover, Lineage & NY Fintech Week Preview (Fintech Recap)
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