India

The continued fallout from the collapse of Synapse Financial Technologies has heightened the discussion — and regulatory examination — of how end-user and various types of accounts are handled as FinTechs and banks join forces.

As a new legal front to the saga opens in a courtroom, the chorus calling for change will only grow louder.

To that end, FinTech Yotta sued Evolve Bank & Trust in California on Friday (Sept. 13), alleging that the bank had engaged in “gross misconduct” and also “brutal theft” in its handling of end-user funds.

The suit centers on not just how end-user funds were treated but also finds fault with Evolve’s handling of “for benefit of” accounts (also known as FBO accounts). As PYMNTS has reported, Synapse customer funds that have been unaccounted for at the time of its bankruptcy stood at about $85 million.

‘Failed Its Most Basic Duty’

The opening salvo of the suit: “This is a case about a bank that utterly failed in its most basic duty to its customers, misappropriating and/or misplacing tens of millions of dollars in customer funds,” Yotta wrote in court documents.

Yotta noted that it “is not itself a bank and does not hold customer deposits. Instead, to the extent that its customers deposit money for safekeeping, those deposits go directly to regulated, FDIC insured institutions like Evolve.”

The FinTech alleged that after a four-year relationship, Evolve “suspended access to all monies” belonging to Yotta customers. Evolve debited customer accounts for over $25 million, according to Synapse’s records, held in FBO accounts.

“These transactions were never authorized by customers,” Yotta wrote, and the debits should not have taken or charged as fees.

Elsewhere in the filing, Yotta stated that Evolve and Synapse had “misappropriated” about $50 million.

The Relationship Itself

Yotta also addressed the relationship between Evolve and Synapse.

“In lay terms, Evolve and Synapse would work together to service Yotta’s end users. Customer funds were always custodied at Evolve. Evolve’s electronic systems would process certain transactions, and Synapse would play a role in processing other transactions with funds located at Evolve,” Yotta wrote in a court filing.

“Synapse combined Evolve’s data stream with its own customer transaction data and deliver the combined data to Yotta and customers,” Yotta added. “The combined data stream was supposed to include (a) each and every transaction in each and every customer’s account and (b) each customer’s current account balance so that Yotta and the customer knew precisely how much money was in their account.”

The FinTech noted that it “received detailed, user-by-user transaction data on a continuous basis from Evolve and Synapse. Because it was custodying end users’ funds, it was critical that Evolve report each and every transaction that it handled involving end user funds.”

Yotta is asking the court to award damages for fraud.

“Had Yotta known the truth about Evolve’s malfeasance, it never would have done business with Evolve, and Yotta’s customers would have been spared a brutal theft at the hands of this bank,” the company said in the filing.

Whether or not Yotta’s allegations will be borne out will take time, as expected from a courtroom battle of this magnitude.

The legal wrangling comes as the Federal Deposit Insurance Corp. (FDIC) proposes a rule to strengthen recordkeeping for bank deposits received from third party, non-bank companies that accept those deposits on behalf of consumers and businesses, as PYMNTS reported Tuesday (Sept. 17).

“The Notice of Proposed Rulemaking approved by the FDIC Board today is an important step to ensure that banks know the actual owner of deposits placed in a bank by a third party such as Synapse, whether the deposit has actually been placed in the banks, and that the banks are able to provide the depositor their funds even if the third party fails,” FDIC Chairman Martin J. Gruenberg said in a release that accompanied the proposed rule making.

The proposed rule would require FDIC-insured banks holding certain custodial accounts to ensure accurate records are kept to determine the individual owner of the funds and to reconcile the account for each individual owner on a daily basis.

In today’s retail environment, unattended payment technologies are revolutionizing the way transactions are processed. Once considered a convenience, these systems are now integral to enhancing customer experience and operational efficiency.

A PYMNTS Intelligence report, “Unattended: The Payments Technology Shifting the Future of Commerce,” in collaboration with Discover Global Network, explores how businesses are adapting to this shift and the impact and future potential of unattended payments.

New Standard for Convenience

The rise of unattended payments is more than a trend; it represents a fundamental shift in consumer behavior. The COVID-19 pandemic accelerated this transition, with the need for contactless transactions becoming a priority. This trend was further compounded by labor shortages, which drove the demand for automated payment solutions.

According to the report, 84% of U.S. consumers now prefer self-service kiosks, with 66% of them choosing these options over traditional staffed checkouts. While Generation Z (84%) and millennials (76%) lead in embracing these technologies, a significant number of Gen Xers and nearly half of baby boomers also favor self-service for its convenience and efficiency. As these statistics reveal, unattended payments have become a crucial component of modern retail strategies, driven by consumer demand for speed and ease.

Revolutionizing Retail

The integration of advanced technologies into unattended payments is reshaping the retail experience. Radio frequency identification (RFID), traditionally used for inventory tracking, is now enhancing the checkout process. For instance, Uniqlo’s use of RFID tags allows for automatic price calculation at checkout, drastically reducing wait times. This repurposing of technology demonstrates how traditional tools can be applied to improve customer interactions.

Biometric solutions are also gaining traction. Amazon One, a biometric payment system, has seen more than 3 million uses at more than 400 locations, including Whole Foods and Amazon Go stores. This technology allows customers to pay with the palm of their hands, illustrating the growing demand for contactless solutions. The swift adoption of Amazon One, expected to expand to all Whole Foods locations by the end of the year, shows how biometric technology is becoming a mainstream payment option, enhancing both security and convenience.

Applications Across Industries

Unattended payment systems are no longer confined to gas stations and vending machines. Their applications are expanding into diverse areas where traditional checkout methods are less efficient. According to the report, 70% of restaurant managers believe unattended payments could easily replace drive-thru operators, while 59% foresee a similar replacement for cashiers.

Restaurants are leveraging QR codes to streamline payment processes, as seen with On the Border Mexican Grill & Cantina. Customers can now pay directly at their table by scanning a QR code, eliminating the need for physical menus and reducing wait times. Similarly, Shake Shack’s adoption of self-service kiosks has not only improved customer experience but doubled sales at its participating locations.

Hotels are also embracing unattended technologies. Twin Peaks Lodge & Hot Springs in Colorado has introduced self-service kiosks for check-in, enhancing guest convenience while minimizing staff involvement. This approach represents a broader trend of integrating unattended solutions into sectors traditionally reliant on personal service.

Unattended payment systems are set to revolutionize global commerce. Businesses that embrace these innovations stand to gain from increased efficiency, improved customer satisfaction, and higher revenue. Those that fail to adapt risk falling behind.

Mastercard chose India for the launch of its Payment Passkey Service.

The online checkout security measure comes as India is dealing with a surge in fraud cases, according to a Thursday (Aug. 29) press release.

“Despite the rising popularity of one-time passwords (OTPs) due to their ease of use, they are increasingly vulnerable to online scams such as phishing, SIM swapping and message interception,” the release said. “In India, the incidence of fraud cases has surged by nearly 300% in the last two years, as reported by the Reserve Bank of India’s Annual Report for 2023-2024.”

Payment passkeys can help ease the problem by using device-based biometric authentication methods like fingerprints or facial scans to streamline online shopping, per the release. Mastercard’s service uses tokenization to secure a consumer’s payment details and biometric data, ensuring data is not shared with third parties and is of no use to scammers.

Shoppers choose their Mastercard when checking out as a guest or pick a card already on file with the merchants, according to the release. Customers can confirm payment via biometric authentication mechanism features on their devices. This could be a fingerprint, face scan or PIN. Payments are completed instantly upon authentication.

The development and use of passkeys is arguably one of the most important security stories of the year, PYMNTS wrote in May, following product announcements from Mastercard and Visa that revolved around the technology.

Meanwhile, the PYMNTS Intelligence report “Consumer Authentication Preferences for Online Banking and Transactions” found that consumers want to use passkeys or any authentication tool that doesn’t involve entering a password. Younger generations especially are ready to get rid of passwords in favor of more advanced identity technology, such as biometrics.

“But like most habits, traditional password authentication use is hard to break,” PYMNTS wrote in January. “Fast Identity Online, the global digital password-less authentication standard, has been trying to move away from password authentication for over a decade.”

Mzukisi Rusi of Entersekt told PYMNTS in 2022 that it would take time to uproot the decades-old authentication system.

“As much as we hate it from a security perspective, people still find [passwords] pretty easy,” Rusi said. “They are fairly ubiquitous, and they don’t need any special technology.”

Paytm won approval from India’s finance ministry to invest in its payment services operation.

The company announced the approval Wednesday (Aug. 28) in a disclosure posted to its website. Paytm has faced scrutiny this year after being ordered to close its payments bank in January.

Paytm said it will now apply with the finance ministry to get back its payment services license.

“We remain committed to a compliance-first approach and upholding the highest regulatory standards,” the company said in its letter. “As a homegrown Indian company, Paytm is focused on contributing to and advancing the Indian financial ecosystem.”

Paytm has been struggling since the Reserve Bank of India (RBI) — the country’s banking regulator and central bank — suspended business at Paytm Payments Bank, which had processed much of Paytm’s payments.

The RBI made the move after an audit uncovered “persistent noncompliances and continued material supervisory concerns,” although the regulator had been warning for years about the questionable relationship between Paytm and its banking arm.

Last month, Paytm reported that its operating revenue slipped again in the quarter ending in June as it continued to wrestle with regulatory issues.

Operating revenue fell from 19.8 billion rupees (about $236 million) in the last quarter to 15 billion rupees (about $179 million). That was down from 23.4 billion rupees (about $279 million) in the same period a year ago.

“The full financial impact of the recent disruptions was seen during this quarter,” Paytm said in an article on its website. “With green shoots visible across — growth in merchant payment operating metrics, gross merchandise value (GMV), accelerated merchant reactivation and an expanding merchant base, coupled with our continued focus on cost optimization — we remain optimistic about our revenue and profitability improvement.”

This year saw Paytm lose ground on India’s Unified Payments Interface (UPI) to the likes of Google Pay and the Walmart-backed PhonePe.

These companies are competing for consumer attention in a country that has been on a digital payments journey for the past 15 years, PYMNTS wrote in late 2023. PYMNTS Intelligence research showed that digital wallets are now the preferred payment method for more than half of all retail purchases in India, with 8 in 10 digital wallet users opting for UPI.