FinTech companies face a lot of barriers when entering the market, but one of the biggest comes in the form of regulation. But what if there was another (but still compliant) way? Jon Jones, President of Trulioo, joined Karen Webster, to discuss how “RegTech” is helping to take care of the regulatory hurdles so FinTechs can focus on what they do best – innovating and disrupting.
When you think FinTech, many words come to mind — startups, disruption, innovation, consumer-centric — but there’s also regulation.
It can be seen as one of the biggest headaches facing FinTechs today and is considered a significant barrier to entry. On average, approximately 20 percent of a FinTech’s operational costs are dedicated to the governance and compliance area.
That’s a number Trulioo President Jon Jones said is only expected to grow as the the speed of regulatory changes taking place in the market shows no signs of slowing down.
Not only are there impacts to how FinTech companies can operate efficiently in such a heavily regulated market, but adding in consumer expectations for a frictionless experience can make those barriers start to exponentially increase.
Regulation is a big challenge, but the option for FinTech companies to simply bury their heads in the sand when it comes to regulation, Jones said, just isn’t realistic.
Enter regulatory technology, better known as RegTech.
As Jones explained, RegTech solutions typically harness data and technology to efficiently and effectively streamline a FinTech’s business to comply with regulatory requirements.
“We strongly believe that a key to growth for everyone — both FinTechs and incumbents in the space — is in leveraging these sorts of emerging regulatory capabilities in an integrated and seamless manner at some form of scale,” he said.
The RegTech Roadmap
FinTechs aren’t just looking to create solutions that disrupt and innovate financial services but also figure out a more efficient and effective way to overcome the existing regulatory framework throughout the space.
Because, a lot of times, the regulatory roadblocks can get in the way of these companies focusing on what they are really here to do.
It’s no surprise that many FinTech companies have come to see regulatory complexities as a nuisance or a piece that they don’t really need to address, Jones explained.
But with RegTech, the goal is to provide the right capabilities that can take the regulatory headaches away.
“The solutions allow them to feel secure in the fact that their company is satisfying the regulations they need to but also allowing them to focus their resources on the areas that they believe they can truly disrupt in,” Jones said.
Though there is work being done by the industry itself — through various collaboration efforts — for now, the financial services environment remains a place where RegTech solutions can thrive.
Not to say that there isn’t a place for regulation, as it is largely there to protect the interests of consumers as a whole, but the confusing and complex nature of adhering to those regulations is where issues can arise.
Jones pointed to a few of these issues, including the fact that there is no global standard, making it very difficult for companies operating across different markets to keep up with the various standards around the world.
What it really comes down to, Jones emphasized, is that regulation just can’t seem to keep up with innovation.
Innovations and consumer preferences are constantly evolving, essentially staying one step ahead of the regulation aimed at keeping it all safe.
The Innovation-Regulation Foot Race
“The speed of regulatory change is typically behind the speed of innovation,” Jones noted, adding that, as consumers increasingly demand online services, there are pain points in ensuring offline processes can map over to an online world.
“I think regulation must constantly evolve to serve the public interests and reduce exposure,” he added.
For RegTech solutions to remain forward-thinking, they must be able to quickly adapt to regulatory changes, while helping to ensure that those changes are being driven with the customer at the center.
But really there doesn’t need to be a race between regulation and innovation. If both are in sync, then regulation can actually act as an innovation enabler.
Too often, FinTechs find themselves having to balance diverting resources and funds into managing these regulation hurdles without sacrificing the inherent transparency, privacy, security and risk that is required. However, Jones said that, with the RegTech, companies are freed up to focus on what they do best — innovate.
The automation of compliance tasks that RegTech solutions offer can not only be applied to new problems encountered by companies, but they can also be effective at solving existing problems in a much more efficient way.
Jones said that Trulioo’s RegTech-based platform is focused on enabling clients to connect to a trusted global data source that can be leveraged to remain compliant with global KYC regulations.
“It’s become a single place where FinTechs and incumbent banks can access a fully transparent data marketplace and feel secure in terms of the data they are connecting to,” he stated.
RegTech solutions can also be utilized to address a wide variety of tasks for more than just FinTech players, such as in the financial industry for onboarding of new accounts, the money remittance market for verification of sender and receiver of funds, the P2P market with monetary exchange, foreign exchange markets and general global buyer-seller marketplaces.
It’s easy to see how these types of regulatory technologies can be leveraged across the general payments space.
“Whenever there’s a real regulatory need to verify the identity of the consumer, we have a real role to pay,” Jones explained.
“The need for trust will never go away, and RegTech will always be focused on helping to achieve that.”