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Shiboleth, a startup using AI to audit bank-fintech partnerships, raised $1.5 million in seed funding led by Y Combinator.

Why it matters: The company is tackling one of the biggest issues and chokepoints in fintech of the last two years.

Context: The blowup of Synapse— whose end customers are still missing millions of dollars — put bank-fintech partnerships under intense scrutiny.

Banks are subject to a number of rigorous constraints, including measures covering anti-money-laundering, customer vetting, and fairness in lending.

But as banks increasingly partnered with fast-moving fintechs to reach more customers, regulators became concerned that fintechs weren't  monitored for the same standards. That led to a series of enforcement actions against banks, as well as increased investment in compliance.

Driving the news: Shiboleth is a dashboard for banks to monitor such partnerships, using generative AI to flag compliance violations, and it can be used to monitor the bank's own compliance.

By collecting the fintech's written complaints and calls, Shiboleth distinguishes problematic trends — such as broader customer service  problems, fraud issues, or unfair account closures — from one-offs.

Shiboleth can also flag instances when a fintech incorrectly calculated APR or incorrectly claims it has FDIC insurance in marketing materials. That's matched against both federal and state-level regulations.

From a fintech's loans data, Shiboleth can point out signs of systemic discrimination, violating the Equal Credit Opportunity Act.

As with most compliance AI models, a human bank employee still makes the final checks. Its customers include Cross River Bank and The Bancorp.

What they're saying: "In the past, banks sampled, say, 30 accounts in millions and millions of customers. With AI, you can basically increase the sample size and do a way better job auditing," says CEO Esty Scheiner.

Between the lines: There's currently no exact standard for banks to monitor their fintech relationships, meaning the frequency and scope of such audits are largely at the bank's discretion.

Shiboleth is among those aiming to create some guidelines: Though the banks still make the rules for the audit program, Shiboleth suggests higher-risk data should be monitored more often.

It's currently monitoring parameters monthly, quarterly, and annually and is testing real-time data.

The big picture: Though the Trump administration is expected to take a more relaxed approach to fintech, ugly failures like Synapse mean scrutiny over bank-fintech partnerships is expected to continue.

Exclusive: Newly seeded Shiboleth eyes bank-fintech compliance

The company raised a $1.5 million seed round for its AI-based audits.

Illustration of a security camera spying on a phone.

Shiboleth, a startup using AI to audit bank-fintech partnerships, raised $1.5 million in seed funding led by Y Combinator.Why it matters: The company is tackling one of the biggest issues and chokepoints in fintech of the last two years.

Exclusive: Newly seeded Shiboleth eyes bank-fintech compliance

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