This fintech launched weeks after Synapse failed. Its CEO is undaunted.

Tony Avelar/Bloomberg

The messy bankruptcy of the middleware provider Synapse Financial is affecting consumers who've been unable to access the funds they'd deposited at certain fintechs. It's also impacting banks that specialize in fintech partnerships and were facing more regulatory scrutiny even prior to the Synapse fiasco.

But new fintech ventures continue to launch. Last month saw the rollout of Liquid Treasuries, a consumer fintech product that combines aspects of checking, savings and investment accounts, and is targeted at affluent Americans.

The product is the latest brainchild of Bill Harris, the onetime CEO of Intuit and PayPal who's since become a serial entrepreneur. In a recent interview, Harris seemed undaunted by the rapidly evolving landscape for fintechs that rely on bank partnerships.

"There is increased regulatory scrutiny. There should be increased regulatory scrutiny," said Harris, the founder and CEO of Evergreen Money, the digital wealth advisor that started offering Liquid Treasuries on June 25.

Evergreen Money's product launch is timed to take advantage of high interest rates in the United States. It allows consumers to put their money in relatively high-yielding U.S. Treasury bills while maintaining the ready access to their funds that checking accounts provide.

"People have a lot of money in checking accounts earning nothing," said Harris. "The problem is not that complicated."

He added: "If you took all of the checking accounts in the country and paid 5% on them, that would be another $103 billion of earnings in people's pockets."

What's more complicated than the problem Harris is trying to address is the mechanism that Evergreen Money and its partners have devised to unlock additional earnings for consumers.

Evergreen Money's account comes with a debit card issued by Everett, Washington-based Coastal Community Bank. Customers also have access to ATMs, the ability to make wire transfers and payments on the automated clearing house, or ACH, network and the opportunity to set up direct deposits of their paychecks. 

Indeed, Harris is advising consumers to use Liquid Treasuries as a replacement for their checking accounts — in order to earn yields of 5.31%, as of late June, on as much of their wealth as possible.  "It's as easy as a checking account," he said. "It's as accessible as a checking account."

Here's the complicated part: The bulk of customers' funds will not be held at Coastal in Federal Deposit Insurance Corp.-insured deposit accounts. Instead, the money will largely be invested in Treasury bills housed in brokerage accounts that are insured by the Securities Investor Protection Corp.

Those brokerage accounts are held with Jiko Securities, another key partner for Evergreen Money. Jiko, which has its own banking arm, has built technology that is designed to make Treasury bills bankable.

The idea is to automatically sweep customers' deposits into Treasury bills, and to create an environment where the money can also be swept back out, Harris said. When a customer makes a debit-card purchase, funds from a settlement account are used to provide immediate access to the customer's money, he said.

Consumers can buy Treasury bills directly from the U.S. government, but Harris said the process is fairly complicated, and that Liquid Treasuries makes owning T-bills simple. 

Some high-yield savings accounts offer similar returns to those available from the Liquid Treasuries product, but residents of certain states can get substantial tax savings by investing in Treasury bills. The interest paid on T-bills is exempt from state and local taxes, which comes in handy in states like California, where the top tax rate is more than 13%.

Evergreen Money Advisors is a registered investment advisor, and the startup earns money by charging a fee based on the size of the assets the customer has under management. The minimum investment size is $10,000, and customers pay a monthly fee of 0.03%.

In light of the Synapse failure, the operational aspects of bank-fintech partnerships are currently getting more attention, and the Liquid Treasuries product is operationally complex, said Jonah Crane, a partner at the advisory firm Klaros Group.

As a middleware provider, Synapse stood between fintechs and banks, and its collapse left tens of millions of dollars in unaccounted-for customer funds. The funds that Synapse held were not insured by the FDIC. Last month, regulators hit former Synapse partner Evolve Bank & Trust with a cease-and-desist order for issues that included shortcomings in consumer protection.

Crane, whose areas of focus include banking as a service and embedded finance, predicted that in the wake of Synapse's bankruptcy, fintechs will have a harder time finding partner banks, since those banks with the best reputations will be in high demand.

"It's not hard to see how you could have a real logjam if everybody is trying to partner with one of those banks," he said. "Banks are getting quite choosy."

Evergreen Money likely had a leg up over many fintechs in that regard. As the founding CEO of the finance app One, which was eventually acquired by Walmart, Harris had previously worked with Coastal Community Bank.

In an interview, Coastal CEO Eric Sprink offered praise for Harris, whose previous ventures include Personal Capital, a digital wealth management firm acquired by Empower Retirement in 2020, and Nirvana Money, a digital credit card for lower-income consumers that Harris shut down shortly after its launch in 2022.

"He's just a mad genius," Sprink said. "He's a really smart cookie."

Sprink agrees with Harris that the increased regulatory scrutiny of the banking-as-a-service industry is a positive development. "I think it's healthy," he said. "At the end of the day, I think a shakeup like this really will make things better.'"

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Other observers, including Jason Henrichs, the founder and CEO of Alloy Labs, said that the Synapse meltdown doesn't appear to have made a big impression on the general public, even amid mainstream press coverage in recent weeks.

Greater public attention to the Synapse situation could be detrimental to various consumer-facing fintechs, even those that are operating responsibly and don't have the risks that a middleware provider can inject.

Henrichs is not an unbiased observer of Bill Harris' latest venture. He said that Harris is a longtime mentor of his, and that Coastal Community Bank is a member of Alloy Labs, which operates a community-bank alliance where member banks can collaborate.

Coastal is also one of the organizers of Alloy Labs' Center for Excellence, which has been working to define standards for the banking-as-a-service industry, according to Henrichs. "They said, 'We either mature the industry, or bad things will happen,'" he said.

Now that bad things have happened — distressed consumers are filing testimonials in the Synapse bankruptcy case — Henrichs thinks that some consumers will think twice about doing business with fintechs. But so far, he said, the impact appears to have been minimal.

"What's it going to take?" Henrichs wondered. "Is it: Jon Stewart needs to report on it before people pay attention?"