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AI has overtaken fintech discussions, according to 19 professionals gathered at Axios' Expert Voices breakfast yesterday.

Why it matters: The challenges AI brings to the fintech sector include managing regulatory hurdles, reducing customer friction and finding solutions that scale beyond niche needs. 

The intrigue: Regulation is always top of mind in financial services, and AI has accelerated concerns around the pace of regulators' response and the role they can and should play.

"I don't think, from a policy point of view, that we're even close," said Raj Date, managing partner at Fenway Summer. He believes it will take a concerted effort between the White House and Treasury Department to make meaningful policy progress.

"I'm a little worried about America inviting innovation in the way that it should," said eToro U.S. chief executive Lule Demmissie.

But Orum CEO Stephany Kirkpatrick said, "Innovation is a better solution than changing the regulations."

What's happening: Regulatory concerns aside, practitioners have their eyes on using AI to improve efficiency and reduce friction, while investors are on the hunt for companies that are developing tools addressing the next stage of AI's development.

What they're saying: Participants outlined various uses of AI they're developing to address distinct needs, and how AI can reduce friction in the market.

Leif Abraham, CEO of Public: "Right now it's great at being accessible, and pretty darn remarkable at democratizing research."

Seth Rosenberg, partner at Greylock: "Generative AI could expand the reach, by multiples, of wealth managers to manage client psychology," which he believes is the primary responsibility of wealth managers, as AI can handle portfolio management.

Harry Stahl, senior director of enterprise strategy at FIS Capital Markets: "AI lets you reduce the time to 'Yes,' and lets you anticipate and avoid adverse credit events."

Chintan Mehta, CIO at Wells Fargo: "AI needs an ecosystem to solve all the problems discussed. No one group can solve all of these issues."

Flashback: In Wednesday's Fintech Deals newsletter, Goldman Sachs CIO Marco Argenti told Lucinda the company has a proof-of-concept pilot that can suggest speaking points sourced from the minutes of previous meetings and additional data points that it believes will best resonate with a given client.

What's next: AI will change market dynamics and put a premium on particular skill sets.

"People building AI at the top levels will be Sherpas," said Soraya Dorabi, general partner at TMV.

"AI elevates the importance of domain expertise," said Everett Cook, CEO of Rho.

1 big thing: Talking fintech & AI at Axios BFD

Axios Fintech Deals' Expert Voices roundtable 

Axios Pro's Expert Voices fintech roundtable / Photo: Steven Duarte for Axios

The U.S. commodities regulator has sued the former chief executive of crypto lender Voyager Digital, alleging fraud, Axios' Crystal Kim writes.

Why it's the BFD: Regulators are combing through the recent spate of crypto collapses to find the ones laced with fraud and misconduct.

Driving the news: The Commodity Futures Trading Commission yesterday alleged that Stephen Ehrlich "fraudulently solicited participation in and operated" Voyager in a way that led to its bankruptcy in July 2022, owing U.S. customers over $1.7 billion.

Over the summer, the SEC and CFTC filed lawsuits against Celsius' Alex Mashinsky.

What they're saying: "Behind the scenes, at Ehrlich's direction and approval, Voyager took excessive risks with customer assets," according to the CFTC complaint.

The regulator is seeking restitution, civil monetary penalties, and disgorgement, as well as a permanent trading ban.

Zoom in: FTX and Alameda Research appear to have gotten a covert mention in the complaints as "Firm A" and "Firm B."

The CFTC alleges that Voyager made significant transfers to "high-risk" third-parties to fund its Rewards Program, which enticed customers with promises of returns.

"As part of this practice, undisclosed to its customers, Voyager conveyed pooled customer assets to counterparties at high risk of default, including Firm A (now bankrupt), Firm B (the now-bankrupt trading arm of a now-bankrupt digital asset trading platform), Firm C (now bankrupt), and Firm D (now bankrupt)."

Flashback: Voyager got a mention in Sam Bankman-Fried's criminal trial in New York this week: Former Alameda Research CEO Caroline Ellison testified Wednesday that in June 2022, Alameda had roughly $4 billion in third-party loans.

The largest were to Genesis (now bankrupt), BlockFi (now bankrupt) and Voyager (now bankrupt).

Of note: The Federal Trade Commission also yesterday settled with Voyager, barring the bankrupt exchange from handling customer assets.

It filed suit against Ehrlich for falsely claiming that customer accounts were insured by the Federal Deposit Insurance Corp.

2. The BFD: CFTC sues Voyager Digital's former chief

Illustration of a gavel hovering over a pattern of crypto coins about to smash one. 

Banks powering Cash App grew like crazy. Then the Feds came calling (The Information)

Lincoln Savings Bank increased its customer count from 18,000 in 2014 to over 2 million in 2019, thanks to a partnership with Block's Cash App. 

But a 2019 probe of the company's anti-money-laundering and customer identification oversight by the FDIC led to a confidential agreement prohibiting it from onboarding customers through its fintech operations.

Stolen FTX funds tied to Russia-linked money launderers (Wired)

The still-unidentified thieves who stole more than $400 million out of FTX on the same day that the exchange declared bankruptcy have been moving those funds across blockchains to hide their tracks. Some clues now suggest those thieves may have ties to Russia.

Coinbase crypto trading volume hits lowest point since IPO (Bloomberg)

According to data compiled by researcher CCData, the publicly traded digital-asset platform registered about $76 billion in spot trading volume, a drop of 52% from the year-prior period.

Tradeshift co-founder accused of sexual assault by company (TechCrunch)

The company — which had raised over $1 billion from strategic investors like HSBC, Goldman Sachs, American Express and Intuit — dismissed co-founder Christian Lanng, citing "serious allegations of sexual assault and harassment" and "gross misconduct on multiple grounds."

3. Credit score

Illustration of an exam answer sheet with the words "credit score" hand written in red ink.

Want more fintech deals? Check out the Axios Pro Deals Tracker beta.

• Membrane Labs, a New York-based cryptocurrency-focused trading and lending platform, raised a $20m series A round led by Brevan Howard, Point 72 and Jane Street. https://axios.link/491ZysW

• Matic, an embedded insurtech startup, raised $17m in extended Series B funding. IA Capital Group and Cultivation Capital led and were joined by Intuit Ventures, TruStage Ventures, and Assurity Ventures. https://axios.link/3rImAnV

• Alpaca, a San Mateo, California-based startup providing stock and crypto brokerage via API, raised $15m in convertible notes from SBI Group. https://axios.link/3rNjwGS

• Account Labs, a Singapore-based crypto wallet provider, raised a $7.7m funding round from Amber Group, MixMarvel DAO Ventures and Qiming Ventures. https://axios.link/46oFhfe

• Lopay, a London-based instant payments startup, raised £6m in seed funding from BackedVC, Portage, the Venture Collective and angels. https://axios.link/46JBh8W

• Parsec, a New York-based insights provider into on-chain markets, raised $4m led by Galaxy. https://axios.link/3rPT0Ni

• Scription, a Toronto-based commercial maintenance-turned-insurtech, raised $2.5m in funding. Markd led the round. https://axios.link/3PTnGFk

• Ergo, an automated pricing platform for Shopify merchants, raised $1.5m in pre-seed funding from Anthemis and Wischoff Ventures. https://axios.link/3ZPR1Fb

• TA Associates invested in Kinective, a Phoenix-based provider of workflow and analytics software for the banking sector, alongside existing backer OceanSound Partners. kinective.io

• Cred, an Indian credit card payment app valued by VCs at $4b, is in talks to buy Indian wealth management app Kuvera, per TechCrunch. Kuvera is backed by VC firms including Eight Roads. https://axios.link/46obEL2

• Fiserv has acquired São Paulo-based financial software provider Skytef. Terms were not disclosed. https://axios.link/48MKtuZ

• NMI, which provides payment gateway and processing to businesses, is set to acquire the commercial division of software and paytech firm Sphere. https://axios.link/3rRhw0l

• Block (fka Square) acquired music-focused fintech startup Hifi. https://axios.link/3ZQn8EP

4. Deals!

• Nehal Shah has been named deputy CTO of Indian public sector bank IDBI Bank. https://axios.link/3txnNij

• Samantha Foerster joined FinMason as global head of business development and relationship management. https://axios.link/46MGcG5

• Kevin Marsh, former VP and senior RIA market leader New England at Invesco US, joined 21.co as head of U.S. https://axios.link/3M0l07w

• Dami Olawoye was named CEO of Nigerian fintech Payhippo. https://axios.link/46s2opm

• LendingClub is laying off 172 employees, or about 14% of its workforce. https://axios.link/3ZWAore

5. It's personnel

👻 Happy Friday the 13th, fintech fiends.

😵‍💫 @Lucinda is functioning on half a brain today. Most likely less.

Thanks to George Moriarty and Rob Reinalda for today's edits.

And thanks to you for reading. Please tell your fintech friends about this newsletter. They can sign up here.

October 13, 2023

1 big thing: Talking fintech & AI at Axios BFD