RegTech The New FinTech

What is RegTech

Reg  + Tech = Regulation Technology. The two Elements of Regtech are important to consider.  As Regtech Companies are a Technology company.

The Innovators Dilemma in Regtech .

The Innovators Dilemma in Regtech regards the change that wasn’t necessarily in the mindset of digitalisation which has shifted slowly due to the high entry barriers in the market and high knowledge barriers that you need to design a Regtech Solution and that may distinguish many solutions from Regtech Startups in Term of “Fitness”.

Vitamins & Painkillers

Vitamins in Regtech are nice-to-have-solutions that are not required by the law or where law makes it an obligation to own and to have self designed systems. It is less a question about “where does Regtech works best?”. But that Regtech can help companies to automate, to digitise and reduce operational risk and costs to make Compliance a Business and Innovation enabler.

Global trend of Fintechnization

Fintech is on the rise. Globally ! Fintech adoption depends on the region and on its regulation but there is a global rise for Fintech in both Consumers as there is for Businesses. Investors are seeing this opportunity to invest in Fintech due to the shift of a cashless society and financial inclusion. This brings about a boost and need for Regtech Solutions.

How is Regtech different to Fintech

Regtech is a Fintech enabler. It can be seen as a subset of Fintech ! Fintech typically consists (or should consist) of 4 Elements:

1. Blockchain and Cryptocurrency: Are the most widely known and used applications in Fintech, as they were amongst the first to initiate the technology shift through Regtech. This sector has grown from investment companies to banks and even social media platforms looking into and creating cryptocurrency.
2. Online Payment Systems: This rise in technology has also paved the way in which people pay for products and services through the mediums on mobile devices and computers.
3. Crowdfunding Platforms: With the era of start-ups, fintech has facilitated this growth of investments through 3rd party platforms such as GoFundMe and other styles of investors for businesses seeking extra financing.
4. Investment and Trading Platforms:The utilisation of direct transactions with stock exchange has allowed the ride of virtual stock-trading and transactions through technology.

The Human Element

Fintech has become one of the fastest growing industries continuously updating the way in which people use their and act with digital devices. However,  has reached a point now where we look at our reliance on these technologies and question the impact of the missing elements of actual human interaction and communication.

Fintech has become almost a oxymoron in its authenticity with trying to mimic a transaction or process that would have previously been completed by humans face to face and by doing so is reducing that personal touch and emotional connection to a transaction. Fintech and Banking companies have realised this reliance from customers that even with the ease through these technological advancements, the human element is where the true experience comes from and will need to find ways in creating a hybrid of the two in order to remain successful.

The Tech Behind

The Two Main technologies used in Fintech Industry are:

1. Artificial Intelligence (AI) and Machine Learning (ML):  AI and ML are the most mainly utilised technology in the Fintech Industry, the application of both AI and ML can be seen in:

• Credit Scoring
• Fraud Detection
• Regulatory Compliance
• Wealth Management

2. Big Data and Data Analytics: The nascent use of Big Data and Data Analytics has become high value for Fintech companies regarding the analysing of data for customers and markets. This enables companies to gain insights from consumer behaviours to developing marketing strategies and fraud detection algorithm.

The Future of RegTech

Regtech is a global market while Fintech isn’t. This is going to change sooner rather than later.The Role of Compliance and Regulation plays a crucial role as getting a license is hard, keeping it is even harder. The future of experienced financial service professionals in Regtech as in Fintech is changing rapidly from a legal to a non legal background. In the long run the Compliance function will profit from this shift as lawyers are not trained to be Compliance professionals. As the digitally natives are the biggest office working group technology expectations gets higher and as digitally immigrants.

Penalties for AML violations are escalating, it’s becoming increasingly difficult to find a good AML analysts to work on mounting alerts, new technologies and payment mechanisms that are further adding to the compliance burden. It’s no wonder companies are increasingly looking to more smart technology to help facilitate compliance.

Each year, AML analysts receive millions of alerts of unusual activity, requiring the analyst to further investigate and determine if the activity is indeed suspicious. In order to protect banks and other companies from these penalties or violations , Juniper Research believes that by the year 2025 spending on Regtech will quadruple to $130 Billion.

If we’ve learnt anything from the passed year it  is that uncertainty is very much so alive and every industry is susceptible to downfalls, overlooks and poor functioning departments. Regtech aims to effectively provide the highest quality of data tools in order in preventing these oversights and reducing the burden for departments in managing and governing false positives.