Support comes from our 2024 lead sponsor of Planet Money Amazon Business. Everyone could use more time. Amazon Business offers smart business buying solutions so you can spend more time growing your business and less time doing the admin. Learn more at AmazonBusiness.com. You can also use your own bank account to pay high interest rates and offer all these fun things that you're boring old bank may not offer. This is the story of what can happen when you sign up for one of those services.
We're going to start with Shadinda and Jordan Gonzales, this couple in Castroville, Texas. They met 11 years ago. He thought I was married at first because I gave some kind of vibe. She wasn't and they got married. Jordan is super into NASCAR and Shadinda, she loves books, specifically mysteries, thrillers. I recently read the intern that was one of my favorites and did another one titled When I'm Dead. I can go on, girl. No, I didn't.
Shadinda is a social worker at a middle school and Jordan's a software tester. For a long time they were living paycheck to paycheck. They'd occasionally buy a lottery ticket, never one. But in the last couple of years they had started to really get their budget under control, paying off like $5,000 of credit card debt, saving up for emergencies. And that one day, Jordan came across this ad. This is what you're doing every time you buy a ticket for the lottery.
The ad shows a bunch of cash being flushed down the toilet. But here's something wonderful. You might not know. You can win the jackpot without ever buying a lottery ticket. Meet Yata, a banking app that has a weekly drawing just like the lottery, except it's free. This ad's for an app called Yata, like Yata, Yata, Yata. And the basic idea is you keep your savings in Yata. Once a week, the app would randomly draw customers and they'd win prizes.
Most of the prizes were just a few dollars, but people could win thousands. They could even win a Tesla. To Sharina and Jordan, this was so appealing. Basically, they were talking about gamifying their savings into a lottery type thing. But at the same time, you're not spending money. You get more tickets by saving. So it's like, hey, it's a neat little deal. There's a name for this idea. It's called prize-linked savings accounts.
Governments around the world have used this concept to help motivate people to save money. Jordan and Sharina, they looked at the app, scrolled through, read some reviews. And to them, Yata looks great. They could get debit cards, monitor their balance, and even directly deposit their paychecks. Basically, Yata seems like a bank. It even seemed to have the banking gold stamp of approval, FDIC insurance.
Absolutely. The bank we partner with is FDIC insured just like Chase. Bank of America wills fargo, and every other bank you can drive to. Then what's the cash? If someone say cash, there isn't one. Sharina and Jordan heard FDIC insured, and to them, that's had something. It said, this app is legit. So they signed up. They started by depositing $200 a month. They won a couple of cash prizes, even a few free coffees.
Sharina buys about three or four books per month. And one month, she got a notification that Yata had randomly covered all of her book purchases. After about a year, Jordan and Sharina started depositing their entire paychecks. It was easy. All they needed was their phones. Even, I don't know, maybe a middle school. How can you use the app? Yeah, it was really good. Yeah, did it feel like the bank of the future?
It really did. Yeah. It definitely felt like something that, like, why are the old banks, why aren't they doing stuff like this? This bank of the future was helping them save money. They managed to put away $6,000. But then, one day in mid-May, Sharina is where else? At a bookstore, and she goes to pay using her Yata debit card. And so at first, they're like, oh, whoa, you know, it's been declined. Weird.
Okay, whatever, you know, there's glitches that go on. So I tried it again, and still was declined. She knew she had thousands of dollars in her account. I was just frustrated, you know, a little embarrassed too, and then people are behind you waiting for you to go into paynecks. And like, why is it my card working? The problem wasn't just with Sharina's account. It wasn't even just a problem with all Yata accounts.
It was way bigger than that. Thousands of people could not get access to their money. And since that day, Sharina has felt like a character in one of those mysteries she loves so much. It's kind of like, wow, I feel like I'm in a book where... It's surreal. Yeah, it was surreal. Like, maybe you were dreaming, hoping you were dreaming, but it wasn't actually your dream. It was actually real life. Hello, and welcome to Planet Money, America Baris.
And I'm Sally Helm. That was more than three months ago. Sharina and Jordan still haven't been able to access their money. Not because they got scammed. This is a much more complicated story about what a bank is and what it is not. Today on the show, how the banks of the future may not be living up to their promise. We've got unreachable accounts, finger pointing, and a regulatory scramble. And a big question for all of us.
Are you banking with a real bank? Because it turns out that matters quite a bit. This message comes from Capital One. Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts. What's in your wallet? Terms apply. See Capital One.com slash bank for details. Capital One NA, member FDIC. Support for this podcast and the following message come from AT&T Business. You can cross your fingers and all your toes during a data center migration.
You can knock on wood, pluck a dozen for leaf clover's, or look to your lucky stars for a successful office expansion. You can hold your breath, shut your eyes, and say all the well wishes to help avoid cyber attacks. But none of that truly helps you, because next level moments need the next level network with a security, reliability, and expertise to take your business further. Take your business to the next level at business.att.com. Yada had tens of thousands of customers.
In total, people had deposited over $100 million. And suddenly, all that money was frozen. And to figure out what exactly happened here, we called up Hillary Allen, a law professor at American University. And I am also the author of the book, Driverless Finance, Fintech's Impact on Financial Stability. Driverless Finance, like a driverless car? Yep, there are cars crashing on the front cover. Hillary's book is about Fintech.
See, Yada is what's known as a Fintech, a financial technology company, like a tech company that does something with money. Think Fenmo or Square. Fintech started to take off in the late 2000s, because of smartphones, and also because of the 2008 financial crisis. People lost their homes and their savings. And they also lost some trust in the big banks. Unsurprisingly, there was a lot of distrust of traditional banks and other financial institutions.
And that sort of created a market to provide equivalent services, but not be the traditional financial institutions. So in the year since, a whole industry, hundreds of Fintech companies have popped up. Fintechs can do a bunch of different things. This episode is about the ones that do the banking-like services. So companies where you can keep money in an account or use to pay for things. Right, and look, there can be benefits to these Fintechs.
There are lots of people that can't afford to use banks. For the unbanked or the underbanked, Fintechs like Yada can help. Give people a place to put their money and save money. And Yada promised to be better, faster, easier to use. It seemed like a bank of the future. But we should make it clear, Yada is not a bank. Erica, no, it is not a Yada is not a bank. And that is a key part of this story. But to customers, it might not have been totally obvious.
It's the, like, if it works like a duck argument, you know, it seems to do all the things that a bank does. Why wouldn't it be a bank? You know, often these will market themselves with the word bank in their marketing. You know, and there might be an asterisk after the bank. Sure. But, you know, and then in tiny print, we're not actually a bank. Because what is an actual bank? A bank does three main things. It holds deposits, makes loans, and allows customers to make payments.
And to become a bank, there is a whole arduous process. Banks have to meet a bunch of regulations. They gotta have reserves. They need to apply for a charter. And these bank-like fintechs have not done any of that. But in our marketing materials, they often make that less than obvious. I was looking at one the other day. Hillary pulls up the page for a popular fintech company called CashApp. So it says, do more with your money. Send and spend, comma, bank asterisk.
And it's not entirely clear where the asterisk links to. Oh, here it goes. In tiny print, it then says CashApp is a financial services platform, not a bank. But that's in small print. It's got bank and bigger print asterisk. And then in tiny print, CashApp is not a bank. Hillary says, if you have questions about the company you're using, just look at the fine print. Does it literally say it is a bank? If it doesn't, it probably is not a bank.
But remember, it might look like a bank and even quack like a bank. And in order to market themselves as bank-like and to do all these bank-like things, these fintechs need a whole financial ecosystem behind them. And this ecosystem is key to understanding what happened to Shadinda and Jordan's money. Bit of a wild ride, so stay with me here. Yada would take deposits from customers. But they were not legally allowed to hold the deposits. So Yada would send the customer money to a real bank.
But they did not send the money directly to the bank. They used a middle company. And the whole problem, the reason Shadinda and Jordan couldn't access their money, it has to do with this middle company. That company is called Synapse. Okay, like essentially the company that is like the connective tissue. And I think that's how they came up with the name. Ah, that makes a lot of sense, doesn't it? Right. Because Synapses are nerve connectors. What is the nerve as a Synapse?
There's like what connects all the neurons and helps them talk to each other. And Synapse is Celty Yada was, you just give us the money. And this is important. We will deposit the money for you at a real bank. Synapse promised to deposit the money at a bank called Evolve Bank and Trust. Evolve's been around for about 100 years. And in the last decade or so, they've worked with a bunch of different Fintech companies.
And when Synapse sent the money to Evolve, the money got crucial protection that banks provide. This is where the money is FDIC. Sure, the FDIC usually ensures individual accounts of up to $250,000. So if the bank fails, customers will get up to that amount back. So when customers put money in Yada, it would go from Yada to Synapse to Evolve. That is how it was supposed to work. But a few months ago, Synapse failed. It filed for bankruptcy. And this revealed an accounting nightmare.
Yada had thought Synapse was keeping track of their customers' deposits. And how much money people earned through rewards and bonuses. But no, according to some of the bankruptcy documents, Synapse wasn't keeping good records. And also, Synapse had dropped much of the money into one big account at Evolve. Which is wild. All this Yada customer money was going into one single huge account. That ended up making it almost impossible to know how much money should go to which customers.
Also, Synapse had moved some of the money to other banks too. So it was really a whole big mess. And this is why Yada customers, like book-loving Serinda and her husband Jordan, couldn't access their accounts. And actually, the problem is much bigger than just Yada. Synapse worked with about 100 different fintechs and 4 different banks. In total, customers couldn't access about $265 million. And up to about $100 million of that is missing.
And look, it's still not clear if Synapse did anything illegal. But Hillary says, in general, fintechs can be very good at scurting regulation. Yeah, so, I mean, not all of this is illegal because they have absolutely huge to the letter of the law. Getting as close to the line as they possibly can and they have violated absolutely the goals in the spirit of the law. But they have not violated the letter of the law most of the time.
After the break, we go to the regulators to find out what this cautionary tale tells us about what kind of new rules we might need going forward. This message comes from NPR sponsor, Capella University. With their game-changing flex path learning format, Capella empowers you to fit education into your life, without putting other priorities on hold. Flex pathlets you set your own deadlines and adjust them if something comes up.
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In reporting out the story, we have reached out to so many angry, frustrated, and confused Yada users. They have a lot of questions. And the overwhelming sense is they don't know where to find answers. I've messaged every single entity like House Representative Senators. That's the White House, the FDIC, the SIPC, the NFCP, the Fed, the Federal Bank of St. Louis. What's that spider-man meme where he's just pointing at himself, pointing at himself, pointing at himself? That's what it feels like.
Rachel Vecchio, David Schoelsinger, and Candice Russell all just want to know how this was allowed to happen. To answer that question, we went to a long time regulator named Mike Sue. How often do you have to explain to all of your like, normy friends, like how exactly this whole system works? It depends on how nerdy they are. We asked Mike to go full on nerd. He says banks in the US are regulated by three different entities.
The Federal Reserve regulates some banks, the FDIC regulates others, and the office of the comptroller of the currency, the OCC regulates the rest. Mike has done stints at the Fed, the Treasury, he's now at the OCC. He's been there for a few years. His job is to oversee the banking regulators. There are about 2,000 people who examine the banks. He's been thinking about fintechs like Yadden Sinaps, because they are everywhere.
My kids are teenagers. When they got jobs, they wanted to just have a fintech app. I said, no, you need a banking account. Here's why. Mike basically tells his teens, if the app is not FDIC-insured and something goes wrong, you could lose your money. Do you keep your money in a bank? It'll be protected. And Ash was like, yeah, that's a good idea. No, were they like, dad? Yes, I mean, but they're like that with me on everything.
And look, if you're a teen whose entire life is on their phone, you can totally see why Fintech is appealing. It is easy to swipe or click. It can even be fun. And Erica, I am not even a teen. And I also understand this. Adults also want their banking to be simple and digital. And Mike says, look, there are ways that fintech and banks can work well together. Like, the app makes a nice streamlined experience.
And then the bank actually takes care of the deposits. And they're both clear about who is responsible for what. But that actually gets to the heart of the problem for these Yada users. Everyone in the system was depending on Sinaps. But Sinaps maybe wasn't doing what it was supposed to be doing. Again, not clear if they did anything illegal, but at the very least they weren't keeping good records. And no one was really watching them.
I think we on the regulatory side really need to start thinking about this through this lens of supply chain. We regulate the banks, but if you've got a long supply chain, we can't reach all the way through. Yeah, supply chains have all of these individual moving parts working together. And when things are going well, the individual parts can become kind of invisible. But when one of them breaks, suddenly the whole thing falls apart.
In the case of Yada and Sinaps, it just wasn't clear which agency would be responsible. We reached out to the consumer financial protection bureau, the CFPB. They said, nope, not us. We have authority over a bunch of different types of financial products. But right now, this type of fintech is not one of them. And the bank regulators are like, well, not us either. This is not actually a bank.
But we can try to do something by regulating the entities that we do have authority over, namely the real actual banks. Like the bank that Yada and Sinaps worked with evolve. Last month, Jerome Powell, the head of the Fed, actually testified about all of this in a Senate hearing. We do supervise the bank. We don't supervise Sinaps or level on the fintechs that feed into Sinaps. And we're strongly encouraging evolve to do whatever it can to help make money available to those depositors.
The FDIC has also been doing what it can. And it can tell fintechs, look, you are not a bank. You cannot say you are a bank. You cannot use some of the specific language that banks use. Like if you look really carefully at Yada's marketing materials, you'll see they don't say they pay a high interest rate. They call it a quote savings reward.
The FDIC even reviewed the language Yada used back when they launched in 2020. And suggested changes to try and make it clearer that Yada wasn't a bank and couldn't protect your money like a bank. So you can see these regulators trying to use the tools that they have to protect fintech customers. But that is not really what these tools were made for. I think the Sinaps bankruptcy and the turmoil around it has really highlighted. Okay, this is what happens if we don't get this right.
What's this, a regulatory failure? So it depends on how you define regulatory failure. Industry is very enterprising, slash creative, slash innovative. And on the one hand, that's a good thing. That's how we get improvement in progress and all that. However, they'll always find a weak spot in the regulatory regime to do something to push the boundaries.
Mike says it's hard for regulators to keep up. He thinks it's actually a job for Congress to pass legislation and give some federal agency the authority to regulate these types of fintechs. We did reach out to spokespeople for synapse Yada and evolve. They didn't respond or declined an interview. All the customers at Yada that we've spoken to have not gotten their money back. It is not clear if or when they will get access to their money.
Including that couple in Texas, Jordan and Chalinda Gonzales, who wanted to save money and win prizes. Jordan and Chalinda are fighting back. Jordan's filed a lawsuit against default bank. But even despite all this, he's not out on fintechs. I'm for trying new things. I really am. We probably do need to read those documents a little bit better. But I'm not against fintechs. I might take a pause from it. But if Yada and his glory days, I'd quickly go back. Chalinda, not so much.
I was like, you know what? This is why people put their money under their mattresses. Like, you know, this is why people don't trust in banks. I was just, you know, going off on that. What are you guys doing now? I am curious. Like, are you keeping your money under your mattress? Or do you have it like at a good old fashioned brick and mortar bank? Brick and mortar, because my trust in the financial system itself really hasn't changed.
Their regular bank doesn't pay out savings rewards, comp their book purchases, or give away any Tesla's. But these days, it's where they're keeping their money. Today's show was produced by Sam Yellowhurst Kessler and Sophia Shukina with help from James Sneat. It was edited by Jess Jang, engineering by Valentina Rodriguez Sanchez with help from James Willets. Backtracking by Kevin Volkhol. Alex Goldmark is our executive producer.
Thank you to Catherine Judge, Stége Al Patel and to Jason Miquilla, whose sub-stack fintech business weekly has been chronically the ins and outs of this saga. Check it out. Also, thank you to the other Yada users who share their stories with us. Krish Nibali, Alisa Weiss and Andrea Caligiri. America Bears. And I'm Sally Helm. This is NPR. Thanks for listening. This message comes from NPR Sponsor Satva.
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