[duxup]

About the Synapse situation

>As a result, the partner banks and fintechs were all reliant on Synapse to determine how much each customer was owed at all times.

I don’t understand how a partner bank would… want to do this?

As a bank knowing your numbers and who you owe seems like a fundamental function, why would you leave that to some middle man and some strange portal?

How do you know they don’t just suddenly say you owe more than you expect?

It sounds like a big risk for a bank….

[ajross]

> It sounds like a big risk for a bank….

On the contrary, the banks aren't on the hook here! If they have a clear answer for "Yes, this customer's money is with you", then they pay. If not, they sit on the funds until some court orders them to do something with them.

The banks are winning big time here. It's their customers who eat the risk.

Ultimately the source of the loss is going to turn out to be some fraud at Synapse that caused their bankruptcy, but it seems like no one has details on that yet. But until then, the banks are sitting on unowned/untraceable free cash. They're loving this deal.

[duxup]

It’s not clear to me if the banks are in the clear yet.

[Terr_]

IANABanker but I suspect it was appealing for the 4 "real" banks because they barely had any work to do. From their perspective they had one single corporate customer called "Synapse" with an account that had a nice huge balance, and life was easy.

Contrast that to if the same sum was divided across thousands of individual accounts. Each would involve a certain amount of regulatory reporting, identity proof, pestering people to pick a beneficiary, monthly statements, etc. In addition there would need to be some way for Synapse to do deposits/withdrawals on the owner's behalf, and more of the sum would be FDIC insured meaning more money would be going out to the FDIC in insurance premiums.

[rossdavidh]

If I understand it correctly, the bank had an account in which Synapse put money. The bank knows how much money Synapse had in its account. This is all that the bank was responsible for. The people who were customers of Synapse's customers, were three levels removed from the bank.

I am neither a lawyer nor an accountant, this is just my understanding of the article.

[masfuerte]

I found an interview with the founder of Synapse and the setup was more complicated than that. It seems that client transactions were happening directly on the bank and the bank was notifying Synapse who were then updating their client balances.

If the bank screwed up this notification process then Synapse didn't necessarily know about it until the customers started complaining.

The notification process was some janky thing involving text files, cron and sftp and frequently failed. Sometimes it didn't work at all (which Synapse would spot) but sometimes it just omitted loads of transaction records.

And it gets worse from there with the bank allegedly pulling various shenanigans and Synapse being blissfully unaware.

I don't see how you can run a finance business when you have no oversight or control over what's happening.

https://lex.substack.com/p/podcast-what-really-happened-at-s...

[duxup]

> The notification process was some janky thing involving text files, cron and sftp and frequently failed. Sometimes it didn't work at all (which Synapse would spot) but sometimes it just omitted loads of transaction records.

What the hell…

I’d seriously question the bank that thought that was ok.

When I worked with big banks long ago that kind of thing would be shocking.

[lesuorac]

Really?

Definitely heard people in the banking area talk about how you just take money from other peoples accounts and if that person disputes it their bank then uploads a file over FTP and if a file never shows up then your bank should assume (but not know) the transfer is valid.

Too bad the link rotted: https://news.ycombinator.com/item?id=7636066

[micah94]

Doesn't ACH still use FTP?

[willmadden]

Yes, and a lot of banks still use mainframes.