What Happens to Your Money When Your Fintech Company Goes Bust?

When a fintech company fails, customers often discover an alarming truth: their money isn’t as protected as they thought. In 2024, more than 100,000 Americans with more than a quarter of a billion dollars in deposits found themselves locked out of their fintech accounts after the collapse of Andreessen Horowitz-backed “banking as a service” startup Synapse Financial Technologies Inc. This important behind-the-scenes player connected fintech apps to traditional banks.

Many are still waiting to get their money back. Thus, the troubling reality is that your money might not be as protected as you think. While a lot of these apps display the Federal Deposit Insurance Corp. (FDIC) logo prominently, experts and the FDIC have clarified that when it comes to whether the money you hold with fintechs is protected, the answer is “it depends.” Even partnerships with traditional banks don’t guarantee your money is safe if the fintech company goes under.

With up to $96 million in customer funds still unaccounted for in the Synapse bankruptcy alone, it’s crucial to understand exactly what happens to your money if your fintech company fails.

Key Takeaways

• FDIC insurance may not protect your money in fintech apps, even when they partner with traditional banks.
• Your funds can become frozen or inaccessible should the fintech go bust.
• Varying types of fintech services offer very different levels of protection—payment apps, investment platforms, digital currency, and digital lenders each have specific risks, with many (especially those in the crypto space) providing no protection at all.

What Are the Risks?

The level of protection your money has varies dramatically depending on what kind of fintech service you’re using. Payment apps that hold your funds for transfers may offer different safeguards than investment platforms or digital lending services. Here’s what you need to know about each:

Payment and Banking Apps

These services typically partner with traditional banks but may pool customer funds in special accounts, making it difficult to track individual deposits. While companies advertise FDIC coverage, the protection only applies if the partner bank fails—not if the fintech company itself goes bankrupt. Recent cases show customers can lose access to their money for weeks or months during bankruptcy proceedings.

Crypto Platforms

The crypto world has provided some of the most dramatic examples of fintech failures. When crypto exchange FTX collapsed in 2022, customers lost billions in funds they thought were being safely stored. (Sam Bankman-Fried, the infamous former CEO of the firm, is serving decades in prison for fraudulently leading many to think so.)

Unlike traditional financial services, crypto platforms don’t yet have any government-backed protection. When these coins fail, customers often become unsecured creditors, meaning they’re last in line to get their money back—in the rare cases they get anything at all.

Investment Apps

Investment platforms usually offer Securities Investor Protection Corporation (SIPC) coverage, which protects against broker failure but not market losses. However, cash waiting to be invested or proceeds from sales may be held in ways that don’t qualify for either FDIC or SIPC protection. The risks on this front become more acute when platforms use complex structures involving multiple entities.

Important

In 2024, the FDIC launched a system to monitor fintech companies that partner with banks to offer financial services. One proposed rule would require stronger requirements for bank recordkeeping for deposits received through third parties, including fintechs. Another would broaden what counts as a brokered deposit—these come with stricter regulations and higher costs for banks. However, much is up in the air with a change in FDIC leadership and a new presidential administration in January 2025.

How To Protect Yourself

• Use fintech apps as tools, not as your primary bank. Keep your main accounts with FDIC-insured traditional banks.
• Never keep more money in any fintech platform than you can handle losing access to, at least temporarily.
• Screenshot or download monthly statements and transaction records from fintech apps.
• Diversify across several financial institutions rather than concentrating funds in one place.
• Check whether your fintech company directly holds a banking license or is just partnering with a bank without extending FDIC and other protections to you.
• Keep records of how you’ve verified your identity with the platform; you might need them in bankruptcy proceedings.

The Bottom Line

The convenience of fintech apps comes with hidden risks that many users don’t discover until it’s too late. While digital banking platforms promise innovation and ease, they often operate in a regulatory gray area that can leave your funds at risk. As federal regulators increase their scrutiny of these services, the safest approach is to treat fintech platforms as useful tools while maintaining your primary banking relationship with a traditional, FDIC-insured institution.