Sankaet Pathak, CEO of Synapse, joined Hrishi Dixit, CTO at Yieldstreet on their investment podcast “The Yield”. This episode covered the rarely talked about work that happens behind the scenes at fintech startups, this time related to flat files and other initiatives and technologies.
The interview kicked off with Sankaet sharing his founder's story of not being able to open a bank account when he first came to the U.S. Then three years later, he was denied a debit card which energized him to build a neobank during a hackathon but he then found that he couldn’t open an actual bank account or issue a card without a bank partner. After finding financial partners, the first version of Synapse that worked like a peer-to-peer payment system for restaurants was born.
Much of that founder’s story has been shared before but this time Sankaet revealed a new part of the story. His graduate school thesis project was a whitepaper called “BIT USD”. With that whitepaper, Synapse had a dollar-to-dollar collateralized hash token, which was a lot like stable coin prior to stable coin. Though viable, it was abandoned in version 2 of the software because it was overly complicated.
When asked were there any shocking moments during the discovery process of learning the financial system in the early days of Synapse, Sankaet said that he learned everything outside in. “The whole thing was shocking because I thought I’d be seeing applets in Java with XML APIs, but I didn't think it was going to be all SFTP uploads of flat files. I was relieved to see it because it was easier to deal with them.”
The underpinnings of the global financial system are mainframes from the 1960s and 1970s but today the world has moved to the expectation of everything in real time which is antithetical to the idea of file-based data exchange. When asked about the gap between consumer expectation of “instant” and the batch process, Sankaet explained that Synapse’s goal has never been the speed of payment, but rather giving people access to financial services that they have never had before.
Reminding us that fintech is old technology with new cloaks whether that be APIs or websockets, it’s also a regulated space. Hrishi asked Sankaet how he navigated the regulatory landscape for Synapse. Sankaet shared that everyone was learning at the same time and some things were being invented as they moved forward.
One of the learnings that Sankaet had around the flat files construct which is the NACHA specifications playbook is the number of edge cases that are documented there. Each of those edge cases over the decades are all of the various ways people wanted to move money with a flat file. “One of the wisdoms I’ve learned in financial technologies is there’s a lot of stuff you discover as you start doing this.”
When asked if he saw a future where the flat files themselves are replaced, Sankaet summarized that flat files are primitive, they’re just trying to move money around. They aren’t applications that are made up of multiple flat files, so instead make them better by building out the right abstraction on top of them like JSON. Let apps mix and match what needs to be done then let the governing body decide what kinds of permutations are right or allowed.
After several minutes covering other topics like risk, fraud, and RTP, they delved into fraud mitigation. Sankaet highlighted that most fraud mitigation applications over-rely on identity verification. A better fraud management system is an analysis of the transaction lifecycle on a macro scale — volatility, amount, payment instrument, etc. Infrastructure providers like Synapse have this macro-scale data and they can work closely with customers who only have their end user data. A new product called Synapse Fraud Score is going into private beta soon.
To close off the time together, Hrishi stayed with the theme and asked Sankaet what flat file he would come up with. Sankaet immediately said batch NFT flat file.