In This Newsletter
AI in Finance at DC Tech and Venture
Embedded Finance
FinTech FAQs: Cryptocurrency Taxation
At the DC Tech and Venture FinTech Summit in early September, Milken Institute’s Maxwell DeGregorio joined Naviya Kothari, manager for credit strategy at Tala, for a conversation on how artificial intelligence (AI) is transforming the financial system. The session focused on alternative credit criteria, AI for RegTech, and generative AI for financial inclusion.
The panelists discussed long-existing opportunities to leverage AI for inclusion and compliance in financial services. They pointed to the work of FinRegLab and Zest AI on how alternative credit criteria can be developed with machine learning and inclusive data sources to enable more accurate risk assessments for underserved populations. They also discussed AI’s use in RegTech and how it can be deployed to facilitate real-time bank solvency monitoring, biometric verification in know-your-customer checks, and monitoring of illicit financial flows.
The conversation also highlighted novel applications of generative AI in financial services, such as the Indian startup Awaaz.De. The company uses generative AI to facilitate mobile messaging and voice interactions in local languages. According to the Census of India, the country communicates in 122 major languages and 1599 less widely used, but still notable, languages. Linguistic diversity presents significant challenges for financial service providers, as offering customer support in multiple languages other than those most commonly spoken can lead to substantial costs. However, generative AI models can be trained to offer real-time translation of customer service into local languages for a fraction of what previously seemed economical.
Generative AI is also being leveraged to facilitate grant writing. The Milken Institute Public Finance Program, in partnership with the United States Department of Agriculture, Mission Driven Finance, the State of New Mexico, and the Environmental Protection Agency’s Technical Assistance to Tribal Communities program, is sponsoring 20 user licenses for Streamline, a generative AI-powered platform designed to assist with grant writing. The licenses will go to underserved, rural, and tribal communities. The tool helps capacity-constrained communities by automating key elements such as grant discovery, proposal management, and document generation.
Embedded finance is a partial realization of the idea that “every company will be a FinTech company,” as articulated by Andreessen Horowitz in 2020. At their most basic level, embedded finance platforms offer integration of financial services into non-financial platforms. This approach allows businesses to embed banking, lending, insurance, and payments directly into their existing ecosystems, delivering financial services at the point of need. According to PwC, embedded finance is transforming how companies interact with customers by removing conventional barriers to financial services and enabling personalized, frictionless experiences. This shift is opening up new revenue streams for nonfinancial businesses, especially in such sectors as retail, travel, and health care. FinTech Finance News reports that HSBC has recently launched an embedded finance product, SemFi, which focuses on plug-in, business-to-business embedded finance solutions.
In Africa, embedded finance offers significant potential to expand access to credit at the individual and SME levels. However, as Finextra notes in its 2024 report, Future of Embedded Finance in Africa, scaling embedded finance in emerging markets requires overcoming infrastructure gaps, meeting regulatory challenges, and recognizing the need for more localized solutions to credit products.
A question we’re commonly asked by the crypto-skeptical: “How is crypto taxed?” In general, the US cryptocurrency tax landscape remains complex. Capital gains taxes apply when selling, trading, or using cryptocurrencies for purchases, with differing rates for long- and short-term gains. Income tax also applies to crypto earned through mining or staking or as payment for services. As part of the Inflation Reduction Act, the Internal Revenue Service (IRS) has increased reporting requirements, including a cryptocurrency ownership question on tax forms and mandatory exchange reporting on some transactions, such as stablecoin transactions over $10,000, starting in 2026, Reuters reports.
Recently, the IRS faced a legal challenge over the taxation of staking rewards, with plaintiffs arguing that staking income should not be taxed until it is sold, similar to unsold property, Coinspeaker reports. This lawsuit reflects the IRS' refocused enforcement of crypto tax policies, which has included hiring specialized tax experts and deploying blockchain analysis tools. FinTech startups, such as CoinLedger, TaxBit, and Koinly, are stepping into the market to provide crypto tax compliance solutions, offering automation and simplification of tax reporting for both individual and institutional users.
In contrast to the US, some jurisdictions are simplifying their cryptocurrency tax codes. Notably, the UAE has recently scrapped value-added taxes on cryptocurrency transactions, bringing the treatment of digital assets more in line with how other financial services transactions are taxed in the country. Crypto News reports that this decision is part of a broader push by the UAE to become a global hub for the industry.
Readers: If there’s a question you’d like to see explored in a future FinTech in Focus newsletter, reach out to Maxwell DeGregorio: [email protected].
