Synctera, an intermediary between banks and fintechs, has become a registered money services business, a status that lets it take on anti-money-laundering compliance and regulatory reporting for some of its partnerships.
The registration comes more than two years after the bankruptcy of Synapse, a once-prominent banking-as-a-service company that served as an intermediary between banks and many fintechs. Synapse’s failure initially left tens of thousands of customers without access to their money. A dispute over millions of dollars in missing customer funds is ongoing.
Synctera’s move is a bet on the continued viability of the BaaS model, with banks getting greater visibility into fintech programs and stronger controls over them. Cable, a compliance tech firm the company recently acquired, will support that effort by continuously testing whether fintech programs follow regulatory requirements and bank policies.
“Some of our bank sponsors have asked us to become an MSB in order to make them feel like we’ve stepped up our own level of compliance and operational support and capabilities,” Peter Hazlehurst, co-founder and CEO of Synctera, said in an interview. “Part of it is also a discipline thing. In order to become [an MSB] you have to have a whole set of processes and procedures documented and tested.”
t-minus10 Finance LLC, a Synctera subsidiary that handles program management and money-services functions, registered as an MSB with the Financial Crimes Enforcement Network on Aug. 10.
Lessons From Synpase
Synapse was also an MSB and both companies’ models rely on sponsor banks holding customer money in pooled accounts known as “for benefit of,” or FBO, accounts. In this system, money belonging to many customers is held together in an FBO account, while a separate ledger tracks each customer’s share. The arrangement depends on that ledger being accurate and its total matching the money in the bank account.
Synapse’s co-founder and former CEO Sankaet Pathak said during bankruptcy proceedings that the company may have commingled customer funds, fintech-program funds and Synapse’s own money, Fintech Business Weekly publisher Jason Mikula posted on X in June 2024. Four months later, the publication reported that bank statements showed Synapse had combined ACH funds from multiple fintech programs and their customers in a single FBO account.
Synctera said its model avoids these problems by keeping each fintech’s funds in a separate FBO account at a sponsor bank. The bank holds the customer's money, while Synctera’s ledger keeps track of how much belongs to each customer.
“We’re never actually the custodian or the holder of the money,” Hazlehurst said. “It’s always still sitting at a bank.”
The company compares its ledger against the bank’s FBO account every day and generates nightly files showing each customer’s balance and transaction history, according to Conway Ekpo, Synctera’s general counsel and corporate secretary.
“If we disappeared for whatever reason, or if the fintech disappeared, the answer is they have the data,” Hazlehurst said.
Adam Shapiro, co-founder and partner at Klaros Group, said Synapse was always an outlier in the industry. He said Synctera’s reconciliation process is an important safeguard because it’s set up to flag discrepancies between Synctera’s records and the bank’s.
“You actually want that cartoon big red alarm bell to start ringing the moment that something gets out of sync,” Shapiro said.
In partnerships that use the MSB structure, Synctera will have its own anti-money-laundering program and independently file suspicious activity and currency transaction reports. Meanwhile, sponsor banks will continue carrying out their own monitoring and reporting, audit and oversight functions.
“It’s their [bank] charter. They ultimately are responsible to their regulators … irrespective of our role,” Ekpo said.
Eligible customer funds at Synctera’s partner banks qualify for pass-through FDIC insurance, meaning each customer is insured individually up to the $250,000 legal limit, even though the money is pooled, Ekpo noted.
That coverage, however, hinges entirely on recordkeeping. Brandon Hammer, a partner and co-leader of the digital assets group at Cleary Gottlieb, cautioned that customer money held in an FBO account does not automatically qualify for pass-through protection. Under federal rules, account documentation must explicitly prove true beneficial ownership and maintain accurate, up-to-date ledgers of each depositor's balance. Synctera said its FBO accounts meet those requirements.
“FDIC pass-through insurance protects you from the bank’s failure, but not from a problem at the service provider, custodian or other intermediary that placed the deposit,” Hammer said.
Synctera won’t use the MSB structure for all its fintech partnerships; the company will decide based on the product and its risks, Hazlehurst said.
The Runway for BaaS
Synctera isn’t the only company enabling bank-fintech partnerships: competitors include Unit and Treasury Prime. Over the past five to six years, intermediaries have evolved from being the system of record to enabling the bank to be the system of record, according to Shapiro.
Hazlehurst said BaaS providers still fill a need by giving banks the technology to serve fintechs and allowing fintechs to connect with multiple banks.
The bigger opportunity may be for companies that handle the operations behind complex embedded-finance use cases, said Shapiro.
“Companies seeking embedded solutions don’t want to have to learn how to handle Reg E chargebacks or create compliant adverse action notices, and most partner banks are set up to oversee those tasks, not to do them,” he said. “There’s a lot of money to be made by any company that can crack the code and provide technology-enabled operations that will allow the embedded finance market to take off.”
The company reports year-over-year growth of 60% in revenue and 52% in deposits. Synctera said it remains on track to break even by the end of 2026 and has raised $94 million to date.
