Fintech investment at record highs but investor appetite for regtech is the start of a long-term trend
The effect of the General Data Protection Regulation (GDPR), which comes into effect in the EU on 25 May 2018, will further add to already increasing regulatory and compliance requirements imposed on companies coming at a high cost.
GDPR is one of three financial regulatory burdens imposed on companies in 2018, adding to the five sets of new financial regulations that the EU already ushered in 2016 and 2017.
Simon Hardie, FinTech Disruptors 2018 Lead, said: “Institutions now see the cost of regulatory compliance as among their biggest problem, and resulting in the focus on “regtech” increasing in coming years.”
A 2018 study from CB Insights reported fintech investment at record levels, with US$16.6 billion invested in fintech businesses globally. CB Insights also recorded a shift in how investors approach fintech, with the decade-long focus on client applications shifting to the back office – and particularly to regulation and compliance technologies, or “regtech.”
Add to this, a 2018 report from InfoCredit Group estimating the cost of Anti-Money Laundering (AML) legislation at US$83.6bn globally, and a clear picture emerges: there is a major business opportunity for new “regtech” to displace legacy technologies in regulation and compliance, reducing costs and saving time in the process.
The recent Fintech Disruptors 2018 survey confirms this view, and add insights into those areas of “regtech” most interesting to investors. Fintech Investments will continue to seek strategic partnerships with fintechs to address back office issues, but with Accenture estimating that compliance costs are rising at 40% per year, “One thing is certain: the shift we’ve seen in investor appetite for regtech is the start of a long-term trend, rather than a blip,” said Simon Hardie.
Fintech Disruptors 2018 bring these trends to life. The study found investor interest in products related to transaction security, authorisation and anti-fraud measures up from 28% in 2017 to 34% in 2018. While the survey found that the main investor focus remains on opportunities offered by new payment technologies (71%), there’s no doubt that regulation and compliance is rising up investors’ wish lists.
Fintech Disruptors 2018 asked investors to comment on those areas of regtech that interest them most. They reported that AML (Anti-Money Laundering) and Know Your Customer (KYC) compliance were the areas of greatest interest (60%), with Privacy and Data Protection Compliance (51%) and Data and Analytics Reporting (43%) also key areas of focus.
Although blockchain remains popular as a potential solution for regulatory headaches, interviewees for Fintech Disruptors this year identify Artificial Intelligence (AI), and specifically disruptive methods of interrogating large arrays of data, as a promising approach in solving regulatory challenges.
The 2018 Fintech Disruptors Report carried out 25 in-depth interviews with senior executives from fintechs and financial institutions, supplemented by an opinion survey of more than 5,000 industry professionals. To download a full copy of the report, please go to: https://bit.ly/2HfkaDR