The Virtual Bank Mess and Your Nonprofit

We’re now discovering what can happen when people who like to “move fast and break things” start providing bank-like services.

Over the past few weeks, frightening reports have come out about how virtual banking intermediary Synapse declared bankruptcy.  Because Synapse was an intermediary, and not a bank itself, this has left depositors unable to access their funds even though the bank that holds the funds has FDIC coverage.

Virtual banking frequently comes with convenience, online service, and generous interest rates that traditional brick-and-mortar institutions have a hard time meeting.  Now we can see that those perks come with new risks. 

My gut says that regulators and the law will eventually get things sorted out for depositors, but nobody knows how soon that could happen.

What does this mean for your nonprofit?

If your nonprofit uses any virtual bank services, I encourage you to carefully assess your risk:

• Do you have too many eggs in one basket?

• Does the institution have FDIC coverage in place?

• Can you afford to have your deposits at the bank locked up for an indefinite period of time?

• Engage a professional to help you fully assess your risk and identify the best course of action