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More regulations and disruptive technologies to shape the FinTech industry

July, 2018

Evolution of Fintech

The European region and the European parliament is stringent with regulations creating a more competitive and innovative financial arena. The focus of European Commission is to embrace innovative technologies and formulate better business models enhancing the security and transparency to the financial sector. The last couple of years witnessed the emergence of RegTech vendors backed by investments from angel investors and VCs. The fintech industry is evolving rapidly with increasing growth of financial applications of robo advisors, digital banks and banking software products, payments, blockchain, insurtechs, alternative finance, and digital identity verification. Many start-ups in The European vendors are expected to gain attention and spread to other regions. Apart from UK and US, many companies have emerged from Ireland, Switzerland, Luxemburg and Germany.

Key functionalities addressed by the FinTech vendors:

More changes in regulations: The onboarding with proper name screening and streamlining (AML and KYC) the operations in transaction monitoring has been a key focus for RegTech vendors. The efforts to comply with Basel III, MiFiD II, AIFMD, Solvency, PSD 2, AML and KYC have compelled financial institutions to implement regulatory software to ease out the complexities in document verification, risk scoring for lending, among others. The financial sector shelled out over $100 billion as penalties, fines and settlements due to non-compliance issues.

Automation: Automation of various financial functions and applications are being enabled by different robotic process automation and AI. The automation of onboarding, onboarding with sanction providers and identifying politically exposed personalities coupled with video on-boarding that has facial recognition capabilities and location detection techniques are enhancing fraud detection and restrict terrorist funding.

Roadway for the FinTech

Flourishing AI in applications: Even though the RegTech market is relatively new, it is expected to fuel the FinTech market overall, given the adoption of Fintech across the globe and compliance gaining importance across financial organizations. Emerging vendors are developing products with high technical expertise along with best experienced professionals from finance background who help these vendors to identify the critical areas in transaction and mine useful data from huge datasets. The RegTech companies are offering regulatory measures for financial operations to various application areas and industries   such as banking and lending services, online gaming, cryptocurrency, money transfers, e wallets, and trading platforms.

Scalability:   There are many financial institutions from the European region and with growing adoption from the Middle East and Asia Pacific region, large as well small organizations are looking to implement regulatory guidelines for financial services. Large enterprises are looking for specialist vendors who have implementation experience with use cases across various scenarios of compliances in large enterprises. The onboarding of many customers and transaction monitoring for a banking institution at one time is often regarded as a challenge for growth of RegTech vendors.

The FinTech industry is evolving and RegTech is expected to witness much more transitions and transformations as the regulations are continuously changing and new regulations to streamline authorization and data security are expected to emerge from the European Union making it a single market for FinTech vendors. The European Union is expected to have close watch on blockchain and AI technologies effecting the financial systems and implement rules to protect data of customers.