What Happens When a FinTech App Shuts Down?

Lately, it seems as though there’s been a lot of bad news looming over the FinTech sector. Obviously cryptocurrency firms are the largest example of this but, with Robinhood now announcing that it’s laying off 23% of its staff, there are other challenges that abound (to be fair, Robinhood’s troubles are also partially related to the crypto market). These instances beg the question: what happens when a FinTech service shuts down?

As someone who reviews a lot of these types of apps, I’ve definitely experienced my fair share of shutdowns. Thankfully, although some of these demises were ones I mourned, I have yet to be truly “burned” by these declines. That is to say that, unlike situations like that of Celsius where the firm is pausing withdrawals, I have always been able to receive my owed/owned funds even as an app was going down.

Since I can only speak from my own experience, I wanted to share some signs that an app may be going away, what it typically looks like once an announcement is made, and discuss some of the overall risks as I see them.

FDIC insurance and FinTech risk

Something to note at the top is that, when it comes to many “neobank” or FinTech offerings, the money that customers deposit are FDIC insured. This is arranged using partner banks that work with these startups essentially offering their banking services to a FinTech’s customers. On the one hand, this is great news as it helps protect customer funds.

However, there is some ambiguity in terms of how exactly this protection would work in the worst case scenario. See, FDIC insurance applies if the bank that has such insurance were to fail. In other words, should the startup the bank is working with dissolve, former customers would not be able to file for FDIC reimbursement. Of course, that’s mostly because the funds are actually still there and being held by the bank — it’s just a matter of how easy it will be for customers of third-party services to access them.

Like I said, I’ve never run into issues when it comes to getting my money out of a closing FinTech. Still, this is a question I often ponder. I’d like to think that, if needed, a bank would be able to identify which funds belonged to which customers and give them direct access to those funds — although I honestly don’t know how realistic that is. With the FinTech sector continuing to grow, hopefully this is an issue that will gain more clarity. In the meantime, despite FDIC insurance, I believe there is still some risk involved in holding money with some apps.

The Pre-Shut Down Pivot

Prior to a FinTech actually calling it quits, you may notice some changes to their service — or, as I like to call this “The Pre-Shut Down Pivot.” A prime example of this is when an app suddenly changes up its business model, which could include modifying its features (namely scaling them back) or raising prices for its services. To me, such moves suggest that the venture capital they were relying on to fuel growth is starting to dry up and they’re suddenly realizing that their current offering isn’t sustainable long-term. Unfortunately, as you can imagine, these changes may not go over well with some users, with the ensuing exodus only hastening an app’s demise.

Incidentally, I recently witnessed a different kind of “Pre-Shut Down Pivot” in the case of PointCard. What makes this situation a bit different is that PointCard itself isn’t shutting down (at least it doesn’t seem to be) but the company is discontinuing the product that put it on the map: the Neon debit card. Months ago, Point announced the impending launch of a new charge card called Titan. I took this announcement as a sign that PointCard was expanding and diversifying its line-up. Instead, it’s now clear the Titan was meant to be a pivot away from the premium debit card market Point helped create and into something that might prove more profitable.

The bottom line is that, when a startup starts making sudden or frequent negative changes to its service or stops showing an interest in its core product, the app may not be too long for this world.

Notification and timeline

Even if you have suspicions that a FinTech app might be on its last legs, you probably won’t be sure until the dreaded email hits your inbox. If you have push notifications enabled for the app, you might learn about the bad news that way as well. In any case, these emails typically include such phrases as “Important update regarding your account” or the blunter “[X app] is Closing on [Date}” Occasionally, these titles can make the email seem kind of spammy, but it’s worth taking a closer look (though you may want to avoid clicking links just in case it is actually spam).

In my experience, these notices are typically accompanied by a timeline of what’s ahead. For example, the app might have a date on which certain functions will be disabled followed by a date when your account will no longer be accessible at all.

Keep in mind that, while these timelines may follow a similar progression, some happen far faster than others. The quickest turnaround from “goodbye” to “gone” I’ve experienced was 15 days (Bella Loves Me) while I’d say that most are between 30 to 60 days. Of course, every app is different so it’s hard to say just how long you’ll have to use the service after being informed that it’s going away.

Getting your money out

When you receive word that a FinTech app you use is going to be “sunsetting,” they’ll hopefully note the last day you’ll be able to initiate transfers from your account. While knowing that date is important, I’d recommend going ahead and taking steps to return any funds you have to your linked bank account as soon as you can. In some cases, you may also be able to cash out some rewards or cashback you have as well.

Should you miss the lock-out date, some services will first try to return any leftover funds to your linked account. If that fails, they should mail a check to your address on file. For that reason, it’s often a good idea to keep this info updated when you move just in case.

Thankfully, I’ve never left my money in the account late enough to have a check mailed to me. Instead, as I mentioned, I try to move everything out as soon as I get word that an app is nearing its demise. This strategy has served me well so far, but it’s nice to know that a backup is in place.

The comeback?

Finally, in many cases, the company shutting down its current product may tease a future return with a bigger and better product. If you’re like me, you’ll probably write off these vows — as you probably should, in most cases. That said, I have seen some resurrections before. Among them, the original version of Long Game died, only to come back in a version I thought was superior. Similarly, though Bumped never fully dissolved, it was severely overhauled before also making a major comeback. Alas, more recent news will see that platform neutered once again, but it’s technically still kicking.

The bottom line is that, while it’s not impossible that the FInTech services you love could find a second life, you probably don’t want to hold your breath. Furthermore, even if another chance is given, history does have a way of repeating itself. Fool me once…

For several reasons, I’m always a bit sad to learn that a FinTech app I use is shutting down. Beyond the fact that I might have enjoyed the service myself, I feel bad for the employees that worked hard to make the app what it was and who might now be out of a job. What’s more, despite my overall positive experience, there is a part of me that worries that I (or some others who were customers) will experience issues with getting their money back. Ultimately, while there are safeguards in place, it’s important to realize that there is at least some risk involved in dealing with startups. Because of this, for as much as I love FinTech on the whole, consumers should be sure to measure the pros and cons — and consider what they might do if the app were to suddenly shut down.

Originally published at Fioney.