A Fintech’s Collapse Raises Questions About a Hot Business Model

Over the past decade, dozens of financial-technology companies have linked up with small and midsize banks across the country. The idea: The fintechs would create slick smartphone apps and offer useful new services to lure customers, and banks would hold on to the deposits, generating lucrative fees from transactions. Importantly, the arrangement allowed the fintechs to tout protection from the Federal Deposit Insurance Corp.

But now, as millions of dollars’ worth of deposits remain frozen months after the collapse of a company called Synapse Financial Technologies, that supposed FDIC protection has come into clearer focus. And those partnerships are facing tough questions. ...