FinTech has been around for ages and it is starting to shift its focus from digitalisation of money to monetisation of data in the financial sector.
After 2008, compliance has been a major issue for financial companies. Massive increase in regulation and reporting requirements have resulted in governance, risk and compliance (GRC) related costs racking up to 20-30 % of total costs in banks.
Nobody loves compliance. It’s horrible for customers and tedious for the financial institutions. If done in a wrong way it scares away existing and new customers.
Old legacy banking systems and isolated vertical data structures translate into manual labour intensive tasks and parsing of reporting data from multiple sources. This is the opportunity RegTech startups are starting to realise and materialise.
The old ways of doing things do not work anymore. Costs need to come down and productivity gains are expected. Yet, it is still early days and relatively little VC capital has been poured into the sector.
RegTech is a relatively new term that potentially can be used in respect to regulative processes in any sector, not just in the FinTech arena. Its earlier forms have been focused on streamlining compliance and reporting processes, often by means of digitalisation.
The latest trend is to start to see RegTech not just as a cost-centre but also as a means to provide business benefits and gains for the customer and revenue side of the business. Automation can provide valuable business data and improve customer experience if properly realised and understood.
Bank bashing is an easy target for politicians and public authorities since like compliance banks do not have many friends. Yet, even regulators have started to realise in some countries that they cannot just kill the financial companies with GRC without consequences to the overall economic activity and GDP growth.
Innovative companies have choices and they can move to more friendly business environments. For this reason some countries have started to introduce financial sandboxes where the full weight of regulations and compliance do not hit new ventures immediately.
UK, Singapore and Switzerland are examples of FinTech and RegTech sandboxing nations. The current $100 billion market of compliance spending is a good incentive for entrepreneurs to consider whether it’s worthwhile to enter the market despite its less than favourable appeal.