Regulators are seeking new perspectives on AI in banking.
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Feds have smart questions for smart banks

Protocol Fintech

Hello and welcome to Protocol | Fintech! This Friday: Washington's AI inquiry, Coinbase's key hire and the growing role of real-time payments.

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The Big Story

Smart questions for smart banks

AI is changing financial services. Now, regulators want to know how deep the changes go, and if they're actually good for consumers and the financial system.

Five agencies, led by the Federal Reserve Board, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, are asking for insights into how banks and technology companies use AI.

How "safe and sound" is AI? Financial services companies, trade associations and consumer groups have until June 1 to submit comments in the "request for information" process.

Fraud-fighting will get a close look. AI is clearly making a difference here. It's helping banks verify identities faster and more efficiently, and crack down on financial crime.

  • Major financial institutions including Citi and American Express have been aggressively using AI to battle fraud.
  • Fintechs are offering AI tools, with plenty of VC backing. Just last week, Feedzai , whose AI tools help banks spot fraud in real time, raised $200 million a round led by KKR, while Jumio, which uses AI for ID verification and anti-money laundering, raised $150 million a round led by Great Hill Partners.

The potential for bias deserves scrutiny. AI is also used to figure out who should get a loan, how much they should get and on what terms.

  • Massive amounts of data are now available to train AI systems. The problem is that AI models "are only as good as the data used to train them," Jonah Crane, a partner with Klaros Group, told Protocol.
  • That's why the feds will likely focus on bias which "could seep into algorithms" and get "unknowingly" introduced into AI models, Bill Pearce of the University of California, Berkeley's Haas School of Business said.
  • It's a huge concern in an industry that has reeled from allegations of discrimination and "redlining," or denying specific groups access to financial services. Communities of color have long had experience with this.

AI has some explaining to do. The CFPB has stressed the concept of "explainability" in AI, the ability to break down the quality of data used and the algorithms that emerge from it. Yes, AI is growing and blazing new trails. But it's still often portrayed as a "black box" technology that's hard to understand, even by the banks and fintechs that have embraced it. The federal scrutiny could force that to change.

— Ben Pimentel


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  • "By colluding in this way, we consider the parties were acting as a cartel. Collusion in payments is absolutely unacceptable." —Chris Hemsley, managing director of the Payment Systems Regulator in the U.K., which accused Mastercard and four other companies of anticompetitive practices.
  • "Nothing is more important than investing in yourself. I want to spread ownership to as many people as I can." —Miley Cyrus in announcing a plan to give away $1 million in stock in a partnership with Square's Cash App.
  • "With strong brakes, the car can go longer, deeper and faster into the turns. Having strong brakes, like strong risk management, can be a competitive advantage." Mark D'Arcy, CEO of Fincad, on why fintechs must focus more on risk management.
  • "We'll keep working to deliver a beautifully designed, intuitive product experience. We'll keep pushing the status quo—because that's how real change happens." —Robinhood on a new app design that drops the much-criticized confetti.
  • "There is a tidal wave of distressed homeowners who will need help." —Dave Uejio, CFPB's acting director, said as the agency warns mortgage providers they could face penalties if they don't help homeowners modify loans.

3 Questions With...

Ron Bergamesca, CEO of Payveris

Payveris is a digital money-transfer company.

What do you think is the most exciting fintech trend right now?

Real-time payments, taking that money in real time out of your checking account and moving it to [pay your bill] at Pacific Gas and Electric [for example.] It's posted real time and you get real-time confirmation. That's a big trend that's going on and in the works as we speak.

What fintech trend do you find most troubling?

It's fraud. It's cyber attacks. Luckily, I have a top-notch CTO who stays awake at night worrying about that so I can sleep. But it is absolutely what's going on and out there. We're moving money and the fintech space is a good place for bad people to start hacking away at. That's why it's so important and coming on us to safeguard as much as possible.

What's been your biggest professional blunder and what did you learn from it?

Earlier in my career in fintech, we didn't partner as well with our distribution partners as others did. That was more of a corporate blunder than a personal blunder. One of the strategic priorities for Payveris that I do hammer my folks on is our most important partners are digital banking providers. We make it as easy as possible for them to work with us.

Need to Know

  • Coinbase scheduled its direct listing for April 14. The cryptocurrency marketplace said it will begin trading on the Nasdaq under the ticker symbol "COIN" in two weeks. The company also hired veteran Morgan Stanley executive Ian Rooney as its new head of enterprise compliance . Rooney had been Morgan Stanley's head of global financial crimes infrastructure.
  • Next Insurance is valued at $4 billion. The small-business insurance startup doubles its valuation in its $250 million fundraising led by FinTLV and Battery Ventures.
  • Pipe reportedly raised $150 million. The funding round reportedly led by Greenspring Associates would boost the subscription financing service company's valuation to $2 billion.
  • Walgreens launches bank accounts. The MetaBank-sponsored accounts with Mastercard debit cards are an effort to jump into fintech. The accounts will tie into the Walgreens loyalty program.
  • BNPL startup Paidy grabs $120 million. The Japanese startup raised a series D from JS Capital Management, Soros Capital Management, Tybourne Capital Management and Wellington Management.
  • Spiral raised $14 million. The digital bank will use the funding round, which was led by Team8, to launch a new banking app that makes it easier for customers to support charitable causes.
  • Capitolis raised $90 million. The capital markets technology company's series C round was led by Andreessen Horowitz.
  • Thai and Vietnamese banks collaborate on cross-border payments. The Bank of Thailand and the State Bank of Vietnam unveiled an international payments system based on QR codes to simplify cross-border payments between the two Southeast Asian countries.
  • Passport Labs names new CEO. The Charlotte-based mobile parking payments company named David Evans as CEO, with former CEO Bob Youakim becoming board chairman.

Data Point

100 million

That's the number of in-store mobile payment users projected in 2021, per eMarketer . Apple Pay leads, with Starbucks, Google Pay and Samsung Pay following.

Thanks for reading — see you Tuesday.

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