Regtech firm Merlon raises $7.65 million in seed finance to fight money laundering and improve big data analysis

Neil Ainger, fintech correspondent at
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Merlon Intelligence, a U.S. headquartered provider of risk management and compliance solutions for financial services companies, has raised $7.65 million in seed financing.

The company, launched last year , has a range of anti-money laundering (AML) and other compliance tools on its analytical platform that can investigate 'big' unstructured data sources in social media and online in order to alert banks about any fraud, sanctions busting transactions, or other risks.

It will use the new growth capital from investors at DCVC, Fenway Summer, Nyca and Work-Bench to find potential customers for its analytical platform and expand and deepen its range of compliance solutions.

Bradford Cross, a partner at the venture capital (VC) firm Data Collective (DCVC) and well known technology investor, is leading the early stage investment round. He has previously invested in Flightcaster, a flight delay predictor, and Prismatic, a failed personalized news reader app that LinkedIn subsequently acquired. This is his first investment in a financial technology (fintech) company.


Merlon Intelligence operates in the regulatory technology (regtech) sub-set that is focused on helping financial institutions (FIs) meet their statutory obligations. There is also insurance (insurtech) and a growing number of other fintech industry offshoots.

Fintech itself is increasingly used as a term specially aimed at bank end uses only, although it remains the over-arching name for this general investment arena. Many of the same technology companies offer similar artificial intelligence (AI), blockchain, big data or cloud computing services across the different verticals as they are applicable for different end uses.

Big data

Merlon specializes in examining 'big' unstructured data pools, such as can be found on social media and on the 'dark web' that criminals use, and then using AI-inspired machine learning techniques to alert FIs about potential AML or fraud risks after it has run its analysis.

When this intelligence gathering capability is combined with FIs own 'big computing' number crunching abilities, in an era where the cost of computing power has fallen, the result can be effective in stopping money laundering and other nefarious activities. Users pay for access, rather than specific products or features.

The regtech firm's natural language processing (NLP) technology can aid automation in the regulatory compliance field and crucially enrich the analytical capabilities of Merlon's platform as NLP helps to make correlations and links between events and people plain, so that anything suspicious can be flagged up. Further investigation by a human FI employee can then follow.

Traditional AML, sanctions screening, on-boarding and internal Know Your Customer (KYC) analysts employed at FIs, and at their partners, can provide feedback to tweak and improve the functioning of the entire system.

The Merlon Intelligence platform should help banks to keep costs down in what is typically a non-differentiating area in which it is expensive to develop or maintain their own FI tools but where nonetheless banks have to meet minimum regulatory standards.

Compliance is a critical field because if banks get their systems wrong, or don't align their people, process and technology as they should, then large billion dollar fines can await.

So-called 'false positive' alerts where activity is incorrectly flagged as suspicious and valid customer transactions are stopped from going through, causing inconvenience and possibly reputational damage, is also a concern. If their intelligence gathering systems, such as the one on offer from Merlon, can reduce the number of these false positives it is beneficial to bank end users.

The regtech firm uses anonymized bank data to improve its functioning and says it is already working with a number of interested bank customers that are willing to share the data because the start-up doesn't actually export any data, just its analytical results. Mutual benefits accrue from sharing data in this manner. If Merlon gains traction and manages to scale up the power and capabilities of its analytical platform will benefit from the network effect of increased cooperation.

Others already operating in the 'big data' analysis compliance field include potential rival Palantir Technologies, headquartered in Palo Alto, California, and established legacy players such as SAS, Oracle and Lexus Nexus.

Expanded team

Merlon Intelligence's operational team has expanded with this first round of VC fundraising. Financial services veteran Konrad Alt, formerly a managing director at Promontory Financial Group and ex-U.S. Department of the Treasury employee with the Office of the Comptroller of the Currency, joins as chief operating officer (COO). He will be part of Merlon's effort to win enterprise software contracts with large banks around the world. The start-up's board of advisors also includes:

  • Cantwell F. ('Chuck') Muckenfuss III, the former U.S. Deputy Comptroller of the Currency and now ex-partner at law firm, Gibson Dunn.
  • Neal Wolin, former Deputy Treasury Secretary and COO at the Hartford Financial Services Group.
  • Mike Marcus, former Chief Risk Officer (CRO) at HSBC.
  • Stuart Bell, consultant and former global sales manager at Bloomberg.

In a statement Merlon's new COO, Konrad Alt, claimed the regtech start-up is: "Building a modern compliance platform that can help control costs, strengthen risk management, and provide a great experience for the people who depend on it do their jobs."

"We can bring all the information that users need together in one system, and use artificial intelligence (AI) to make sure important details never get lost," he added. "When big financial institutions can meet their compliance obligations more effectively, at a lower cost, everybody benefits."

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