The bank behind the fintech revolution stumbles as funds go missing

Pathak said in a statement that Evolve's inability to pay customers casts doubt on the "safety and security" of the financial system.

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The bank, which is privately owned, remains well-capitalized and has ample funds, Lenoir said last month.

The missing funds show how Silicon Valley's push to revolutionize consumer finance hasn't quite lived up to its lofty expectations. While fintechs proclaim themselves as new banking products, many aren't actual banks and rely instead on old-fashioned lenders, like Evolve. Even though Evolve is FDIC-insured, the bank isn't the one that failed, so deposit insurance doesn't apply.

Lorena Baculima signed up with Juno, a Synapse customer, which offered to pay her 5% interest on her cash deposits. She put approximately $130,000 into an account with a routing number belonging to Evolve Bank.

When she tried to use those funds in May to make a down payment on a house, she couldn't access the money. In late November, Evolve told Baculima it only had $1,182 in her name.

"I thought my funds would be safe because they were in an FDIC-insured account," Baculima said. "Nobody has been standing up for us. In my opinion, everyone involved is responsible."

Boom times on Beale Street

Lenoir and a small group of investors bought what became Evolve Bank in 2005. For around a decade, it grew by catering to businesses and consumers in the Memphis region. In 2017, he hitched the bank's fortunes to Silicon Valley and Synapse.

Pathak felt banking in America was still stuck in the analog era when he moved from India. He started Synapse from his apartment in 2014, moved to San Francisco and began working with startups that were looking to offer software-enabled savings products.