Orange is the new black, forty is the new thirty…is RegTech the new FinTech, or just its younger sibling?
What is FinTech?
Whether we realise it or not, financial technology has been around for a long time. Credit Cards were introduced in the fifties, Automated Teller Machines in the Sixties but in the last few years FinTech (Financial Technology) has exploded, and is now threatening to narrow the gap on traditional financial service offerings. In its ‘The Pulse of FinTech 2016’ report KPMG state that global investment in fintech companies hit $24.7 billion.
The term references computer programs and other technology used to improve and ease both operational and customer engagement capabilities; the term can also refer to start-ups and technology providers.
Why FinTech matters
Mobile internet usage has overtaken desktop over the last few years and we have become a society of managing our lives by the tips of our fingers – we can even control our central heating remotely!
The rise of FinTech has changed the way companies conduct and develop their business at both a B2B and B2C level. Long gone are the days of a visit to your local high street bank or conventional investor being the only option for growth of businesses.
Smartphones and a culture of ‘always online’ has led to the innovation of apps, crowdsourcing and instant mobile payments. New start-ups have been born out of customer’s frustrations at traditional institutions out-dated practices. Monzo is one of these start-ups and an example of how innovation has helped create the UK’s ‘first digital, mobile-only bank’. Monzo set the record for "quickest crowd funding campaign in history" when it raised £1m in 96 seconds via Crowdcube in February 2016 and its mission is to build ‘the best current account in the world’.
This is an era of choice, and there has never been as much for businesses and consumers as there is currently. Many companies have embraced this changing landscape, and the result, so far, has been easier online offerings, which in turn has produced more competition. The fastest moving sector has been the consumer and retail payments sector. Most recent retail payment innovations have been mobile wallets, person-to-person (P2P) mobile payments, real-time payments and digital currency solutions including bitcoin. The value of innovation can be measured in the real, everyday difference in efficiencies that FinTech makes for small business and customers.
So, what is RegTech?
RegTech is not the new FinTech but instead stands alongside it. Short for ‘Regulatory Technology’ this latest family member refers to technology that is designed to help businesses comply with the increasingly complex regulation of their industry efficiently and more effectively than existing capabilities.
RegTech is not a new concept and has been around for some time in different shapes and sizes, but is now gathering momentum. Regulatory expectations have significant operational impacts on firms, but factors such as tighter financial regulation globally (post the 2008 financial crisis) and an increase in the demand to capture, store and analyse management information are now creating the environment for this automated technology to prosper.
Stan Lee once said “with great power must come great responsibility”; FinTech has unleashed its innovative power on the globe and regulators now have the responsibility of creating new regulation in a way that reduces risk without restricting further development.
With the emergence of RegTech, regulators are starting their own relationships with FinTech start-ups in order to push the correct method of compliance. Last month, as part of the Project Innovate initiative, the FCA opened its regulatory sandbox. The idea of such a sandbox is to invite applications from companies in order to provide a ‘safe place’ in which they can test new ideas and services before being offered to the consumer. In its report on ‘UK FinTech: on the cutting edge’, EY refers to the UK as having the “strongest FinTech policy environment, with the most supportive regulatory regime”. It also goes on to commend Singapore and Australia on its increasing progressive policy initiatives. The Monetary Authority of Singapore has been running its own sandbox since March 2017. Undoubtedly, other jurisdictions will follow suit.
Just the beginning
Innovation has changed the way we communicate, shop and even watch TV, and now the way we access our Financial Services. As the FinTech space evolves, the RegTech approach must keep up to ensure customer experience and compliance frameworks continue to be the focus of modernisation.
There aren’t many things certain in life, but unquestionably the FinTech/RegTech space will continue to grow; the future of digital innovation is bright and it is only a matter of time before other industries are given the ‘tech’ treatment.
Authors note: content updated on 17/07/2017
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