Many business owners assume that an online financial platform operates like a traditional bank, especially when the website or app references FDIC insurance. Attorney Joe Seagle explains why that assumption can be dangerous. Companies such as PayPal, Cash App, Venmo, and similar fintech platforms may provide banking-like services, but they are not necessarily banks themselves. Instead, a fintech company may rely on intermediary companies to process transactions, maintain customer account records, and transfer pooled funds into accounts held by an actual bank. The customer sees a balance on an app, but behind the scenes, the money may be passing through several different companies.
This complicated structure becomes especially important when one of those companies fails. Joe discusses the problems involving financial technology company Yotta and intermediary Synapse, where customers reportedly lost access to money they believed was safely deposited. The partner bank may have held a large pooled account containing funds belonging to thousands of customers, while the intermediary maintained the records identifying how much belonged to each person. When those records became unavailable or disputed, customers were left trying to prove how much money they had. The situation demonstrates why the words “FDIC insured” do not automatically mean a fintech customer will receive the same protection, access, or experience they would have with an account opened directly at an FDIC-insured bank.
The warning is particularly relevant for entrepreneurs opening accounts for new companies, LLCs, and Florida Protected Series LLCs. A business owner using multiple entities may need several separate accounts, making the speed and convenience of online platforms especially attractive. Before depositing operating funds, reserves, tax money, or other important business assets, owners should confirm whether the provider is a chartered bank, identify the institution that will hold the funds, and understand whether any intermediary companies are involved. Attorney Joe Seagle explains why establishing a direct relationship with a reputable business bank may provide greater clarity and accountability. Watch the full episode to learn what you should investigate before trusting an online platform with your business funds. For additional background, watch More Perfect Union’s report, How Millions of Americans Got Tricked Into Using a Bank That Isn’t a Bank
Transcript
Did you know that a fintech and a bank are not the same thing? Do you even know what a fintech is? A lot of people don’t. Well, a fintech is a company like PayPal, Cash App, Venmo, Apple Pay, or even Yada. That’s one that I’ve recently heard about. As is usual tonight before I was getting ready to go to bed, I was sitting down and I watched this great video.
By More Perfect Union, about how millions of Americans get got tricked into using a bank that isn’t a bank. And this actually came up this week in a conversation with a client who was talking about how she was going to go online and get her business bank accounts open. And I just said, Well, are you sure it’s a bank and not a fintech? And I explained to her what the difference was, and she goes in real quick and she checks and she goes, my gosh.
It says right here, this is not a bank. So she was going to pull all of her money out and take it down to a bank. Well, a fintech is the way I like to think about it, sort of like a lawyer that collects your money and puts the money in their trust account. So PayPal, Apple, Cash App, Venmo, they don’t actually hold your money in most cases. They are not the bank. All they do is process.
the movement of the money. So you go on your app and you you send the money and it pulls the money from your account and sends it to whoever you want to send it to. And you think, this is like a bank. I’m sending it from one bank to another bank. That’s not the case. What you’re really doing is that app uses a company in between the app and the bank. And it may use multiple companies between the app and the bank.
So your money comes in, it then goes through an interchange intermediary that then puts the money into a bank along with thousands or millions of other people’s money at this one bank. So the bank simply has an account with the interchange company, the who then has the account with the fintech. And it puts all that money.
into the bank account. And it is what is keeping up with who, whose money and how much money is in the bank account behind it. And then it is sending that information to the fintech on the front. So you may put $20 in every week by the fintech app, goes through the interchange, they take that $20 a week and they throw it into this giant bank account, which may have
hundreds of millions or even a billion dollars in it or more. And the banks love it because they have a huge depository account. The problem happens, the problem comes up when those interchange companies fail. And that’s what happened with Yada. People would put money in Yada thinking okay and it said FDIC insured because ultimately the money is FDIC insured at a bank somewhere. But what it’s done is it’s gone through the interchange company. Well when the interchange company fails
It’s just like if a lawyer disappears and then nobody knows whose money the lawyer was holding in their trust account because only the lawyer had that ledger system to keep up with which clients had put how much money into the overall giant trust account. Works the same way. So Yada comes back and says, Well, we’ve had a trouble trouble a problem with our interchange company. And so it’s not
moving back and forth. Well, the reason I just bring this up is because we we help a lot of clients set up new companies. And now with Protected Series coming online in in Florida, they’re starting to open up multiple bank accounts, one bank account for each Protected Series LLC under the Mothership LLC. So now they’re opening up more and more bank accounts. And a lot of people are going, well it’s just easier to do it with an online bank.
And they and they call it an online bank. What they really mean is it’s a fintech. Because if you really look at that online bank, it’s not a bank at all. It’s simply keeping up with your money passing through it, through the interchange, and into the master account. If you watch this great video, this great mini documentary that that
They put together, the more perfect union folks put together, you’ll see how the system really works. But you’ll also see that when that interchange company failed and Yada people were asking Yada to send them their money, they said, Well, we don’t know how much money you really have because the interchange company is not telling us anymore. So then they go straight to the bank that was listed as the bank where Yada ultimately put the money, and the bank’s going.
We have no idea who you are because we don’t deal with you. So we don’t know how much money you have in our bank. And people ended up getting back pennies on the dollar at most of their money. Some people lost tens of thousands of dollars that they had put in through Yada faithfully as rainy day funds, emergency funds, house down payments, business accounts, whatever, and they’re just the money’s just gone. They have no idea.
Because the end bank has no idea whose money is there. So I just want to put that out there as a warning, as a caveat. It’s always best if you are setting up a business bank account to go to a physical bank, preferably one who already knows you. Typically, you’re going to want to go to the main branch in the city and sit down with a business banker and establish a business account.
So now you are truly with a bank. It is FDIC Insurred and it’s a real bank. It’s not a fintech online that overnight their interchange company could disappear, they could disappear, and now all your money has disappeared. So just want to put that out there. If you have any questions, let us know. If you like this, comment. We’re going to put the link to the to the more perfect union video down below. So you can go straight to it and watch it. Like I said, it’s fascinating.
at least it was for me tonight before I went to bed.
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