Infighting among fintech players has caused TabaPay to ‘pull out’ from buying bankrupt Synapse

Instant payments company TabaPay has abandoned its plans to purchase the assets of troubled banking-as-a-service startup Synapse, TabaPay confirmed to TechCrunch today. Synapse says the problem is banking partner Evolve Bank & Trust. And Evolve says it is not involved, and not to blame. Meanwhile, another player in the saga, Mercury, says Synapse’s allegations have “no merit.”
Synapse’s counsel declared in bankruptcy court on Thursday that the deal would not be moving forward, Fintech Business Weekly’s Jason Mikula shared on LinkedIn. A spokesperson for TabaPay confirmed to TechCrunch on Thursday afternoon that the company had “pulled out,” adding that TabaPay had sent “termination notice of the purchase agreement this morning based on failure to meet the purchase agreement closing conditions.”
Synapse CEO and co-founder Sankaet Pathak, however, believes that TabaPay can still be convinced to stay in the deal. He told TechCrunch that his “understanding is that TabaPay is still interested in doing the acquisition, but Evolve has failed to meet their closing condition for TabaPay to be able to close.” 
That closing condition is that Evolve Bank & Trust must fully fund its FBO accounts and has thus far failed to do so, according to Pathak. FBO stands for “For Benefit Of” account, and is defined as “a bank or investment account that is set up to receive funds on behalf of a third party or beneficiary.”
For its part, an Evolve spokesperson told TechCrunch that “Evolve was not party to the Tabapay (sic) acquisition, and we did not have closing conditions to meet. However, we did have a settlement agreement with Synapse that had a funding condition. Evolve satisfied that condition.”
Still, Pathak maintained that: “Until last night Evolve had communicated that it would be funding its FBO accounts as required by the parties’ settlement agreement, but it continued to request extensions to resolve the issue with Mercury and to obtain Mercury’s buy-in,” Pathak told TechCrunch. “And last night, Evolve informed Synapse and TabaPay that they had fully funded the accounts – while they have not. Given that open issue – TabaPay is unable to close the transaction.”
San Francisco-based Synapse, which operated a platform enabling banks and fintech companies to develop financial services, was founded in 2014 by Bryan Keltner and Pathak. It was providing those types of services as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury.
Synapse ran into difficulties last year after having served as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury. When Evolve and Mercury decided to end their respective relationships with Synapse and work directly with each other, Evolve and Synapse were reportedly at odds with each other as the relationship was winding down. (Evolve is not to be confused with another Mercury partner, Choice Bank, that the FDIC is looking into over compliance with how it allowed Mercury accounts to be opened up overseas.)
In a Medium post, Pathak alleges that when Mercury and Evolve ended their partnership with Synapse, Mercury moved $49.6 million more out of the Synapse-affiliated accounts than Synapse believes it should have and has not reconciled the overdraw. 
In October, Mercury publicly said that the transition away from Synapse was complete and “reconciled.”
“Our hope with open sourcing this information is that there will be a public outcry (at least from our customers) that will motivate Evolve and/or Mercury to swiftly resolve this issue instead of hoping that this problem would go away,” Pathak wrote. “This resolution is material to Synapse and our ability to be able to close the TabaPay transaction. Our understanding is that Taba would finish the acquisition if Evolve met their closing condition of funding their accounts.”
In a written statement, a Mercury spokesperson told TechCrunch: “We have thoroughly investigated Synapse’s claims from the moment they were brought to our attention in March 2024 – six months after we migrated off of Synapse – and are confident that they have no merit and all customer funds are accounted for.”
The spokesperson added, “After Mercury sued Synapse in December 2023 seeking to recover significant Mercury revenue that Synapse withheld in violation of their contract, Synapse began manufacturing allegations and counterclaims against Mercury. These claims have varied in number and type, and we’ve investigated them all out of an abundance of caution, but all have proved meritless.” Mercury specifically denies the allegations that “Mercury customer FBO accounts were allegedly overdrawn.”
On April 22, TechCrunch reported that Synapse had filed for Chapter 11 bankruptcy and that its assets would be acquired by TabaPay, according to the two companies.
The deal was pending bankruptcy court approval.
The $9.7 million purchase price was significantly lower than the over $50 million in venture capital that Synapse had raised from investors such as Andreessen Horowitz, Trinity Ventures and Core Innovation Capital over time.
Founded in 2017, Mountain View-based TabaPay is an instant money movement platform that SoftBank backed in a 2022 round of an undisclosed sum. It is not clear how much venture capital it has raised.
Last October, Synapse laid off 86 people, or about 40% of the company. This was after the startup had previously let go of 18% of its workforce last June. At the time, Synapse said “the current macroeconomic conditions” had begun to impact its clients and platforms, affecting its anticipated growth.
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