Brazil's digital bank Neon hurt in liquidation case

The tech startup is banned from opening new accounts as the bank providing its infrastructure goes under.

Brazil's central bank suspended the operations of Neon Pagamentos, the fintech that raised $22 million in funding a day earlier.

The digital bank processed checking accounts through the infrastructure of Banco Neon SA, a small lender liquidated today due to "grave violations of legal and regulatory norms" and its "compromised financial situation."

While Neon Pagamentos was not liquidated, the situation with the bank it is associated with means new digital accounts cannot be opened and current users might have their accounts blocked.

"It should be noted that the irregularities found at Banco Neon are not related to the opening or operation of digital accounts or issuance of pre-paid cards, which is covered under an operating agreement with Neon Pagamentos SA," the central bank said in a press release.

The fintech posted a series of Twitter updates trying to reassure users. According to the firm, account balances remain available for withdrawals and purchases via debit card. However it said other services such as transfers and payments, as well as credit card functions, were "unstable."

Yesterday, Neon had announced its latest investment, Brazil's biggest-ever Series A funding. Participating investors included Propel Venture Partners, Monashees and Omidyar Network.

The fintech told ZDNet that it planned to grow its customer base from 600,000 clients to 1 million this year.

Neon Pagamentos said that its investors continue to back the company and everything still stands regarding the latest funding round. A representative at the fintech told ZDNet that the company is now looking for another bank to partner with - when that happens, the company will be able to reactivate its customers' digital accounts.

"We have the 'fin' and are now looking for the 'tech'," the representative said, adding that the company should be able to announce a new partnership for settlements with another bank soon.

Updated May 7, 7:25 AM EST to add comments from Neon Pagamentos.