MARY LOUISE KELLY, HOST:
Maybe you've seen ads for these new online banking apps that offer fun things, like prizes or contests. But be careful. There might be a catch to them. Planet Money's Erika Beras brings us this cautionary tale.
ERIKA BERAS, BYLINE: Charinda and Jordon Gonzales of Castroville, Texas, met 11 years ago.
CHARINDA GONZALES: He thought I was married at first...
JORDON GONZALES: Oh, I did. Yeah.
C GONZALES: ...'Cause I gave some kind of vibe.
BERAS: She wasn't, and they got married. Occasionally, they'd buy a lottery ticket - never won. Then Jordon came across this ad.
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UNIDENTIFIED PERSON: Meet Yotta, a banking app that has a weekly drawing just like the lottery, except it's free.
BERAS: Yotta - an app where customers could keep their savings. They'd win prizes like money, a Tesla. You could get a debit card, even directly deposit paychecks. Plus, it seemed to have the banking gold stamp of approval - FDIC insurance.
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UNIDENTIFIED PERSON: Absolutely. The bank we partner with is FDIC insured, just like Chase.
BERAS: They signed up. It was like everything they'd get from a bank, but more.
C GONZALES: Even - I don't know - maybe a middle schooler can use...
J GONZALES: Yeah.
C GONZALES: ...The app.
J GONZALES: Yeah, it's really good.
BERAS: Yeah. Did it, like, feel like the bank of the future?
J GONZALES: It really did. Yeah. It definitely felt like something that, like, why are the old banks - why aren't they doing stuff like this?
BERAS: Yotta had tens of thousands of customers who had deposited over $100 million. But a few months ago, suddenly, all Yotta accounts were frozen. Hilary Allen is a law professor at American University who studies apps like Yotta. She says customers end up at risk because these financial technology companies, known as fintechs, aren't banks. But that's not totally obvious.
HILARY ALLEN: It's the, like, if it walks like a duck argument. 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.
BERAS: Sure (laughter).
ALLEN: But, you know - and then in tiny print, we're not actually a bank.
BERAS: Banks have to meet lots of regulations - have reserves, apply for a charter. Yotta would take deposits from customers, but they were not legally allowed to hold the deposits. Only a bank can do that. But it's complicated for a new fintech app to figure out how to send the money, track the money, comply with regulations. So they turn to this middle company - Synapse.
Like, essentially, the company that is like the connective tissue.
ALLEN: And I think that's how they came up with the name.
BERAS: So customers' money would go from Yotta to Synapse to a real bank. But in April, Synapse filed for bankruptcy, and this revealed an accounting nightmare. Synapse had not been keeping good records. It had dropped much of the money into one big account at a real bank and moved some customer money to other banks. Synapse worked with about 100 different fintechs and four different real banks, so it's hard to tell whose money is where and how much is missing - maybe up to $100 million. So some of the banks froze people's accounts.
ALLEN: Yeah. So, I mean, not all of this is illegal. They have violated, absolutely, the goals and the spirit of the law, but they have not violated the letter of the law most of the time.
BERAS: It's been more than three months, and Charinda and Jordon still haven't been able to access their money. But despite all this, Jordon is still not out on fintechs.
J GONZALES: 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 - Yotta in its glory days, I'd quickly go back.
BERAS: These days, they're using a good old-fashioned brick-and-mortar bank.
Erika Beras, NPR News.
KELLY: To hear the rest of this fintech fiasco, you can listen to the Planet Money podcast or your local NPR member station.
(SOUNDBITE OF CHARLI XCX SONG, "360") Transcript provided by NPR, Copyright NPR.
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