A convoluted and oversaturated space for new RegTech entrants and unexpected changes to regulations are the two main issues facing the sector, according to Precognitive SVP of Operations Chris Le in a research interview with FinTech Global.
“One of the biggest risks the RegTech sector faces, related to new or changes in regulations, is not making investments in innovation, so you can think of some companies that are behind the curve from a technology perspective, they are not making the right investments to allow them to keep pace with constant change”, Le said. “So, whether that be a company, like Precognitive, that can help protect the company’s assets and the consumer base but also companies that have a broader reach to the new generation that will presumably be the target market audience for a couple of decades.”
While Le said the sector is oversaturated for new entrants, he does not necessarily expect companies to start disappearing. Aside from the inevitable failure of some newcomers, the world’s thirst for mobile and technology driven economies will lead to more of the new entrants understanding they need to boost their innovation or make investments and acquisitions into other companies, he said. This will see a lot of the newer entrants trying to differentiate themselves or get a cut of the businesses.
According to data by FinTech Global the number of deals in FinTech hit a record high in Q1 2017 with a total of 33, which is contrasted to Q2’s 29. However, compared with last year’s first half, there have been eight more deals in RegTech this year, with last year’s H1 seeing 54 deals complete. Total funding into companies over the last quarter was up from $168.8m in the first quarter to $209.4m. Again, in relation to 2016 H1, there has been $48.5m more in funding in RegTech.
Chicago-based Precognitive is an online fraud protection platform which combines device intelligence, advanced behavioural analytics and a real-time decisions engine to help detect and prevent fraud incidents. The platform encompasses the entire user journey, lowers operational costs and uses the behavioural and machine learning capabilities to require less manual intervention.
One of the things that companies can also do to ensure they are able to keep up is doing the necessary due diligence. Precognitive said it has done this to ensure is able to continue along its development, by making necessary due diligence for the platform and places it will be implemented, but by also getting the right team, he said. The company has
Unexpected regulation changes
The other area that is a potential trap for RegTech companies is the ever-changing state of regulations and new implementations.
Le said, “As companies like ours get larger and established deeper relations into these financial institutions, there will always be some new security, legislation or regulatory challenges that you must be aware of and have the ability to address quickly in order to ensure compliance. As you are becoming a crucial part of these large financial institution then you may have the same regulations imposed on you that you must be prepared for.”
The increased levels of regulation is a double-edged sword – a hindrance to companies having to constantly adapt to new implementations, but also the reason they are necessary and have financial institutions onboard their solutions.
Le said, “I think a lot of these RegTech companies realise that they have physical constraints applied on them, whether that is from the sheer size of the company that they are, so innovation isn’t necessarily possible intracompany. That is a hindrance but also gives companies like Precognitive the opportunity to partner with those companies and deploy a much quicker technology that’s capable of keeping pace with the ever-changing regulations.
“The adaptive nature of regulations can be a hindrance for the RegTech companies when faced with the needs to remain complaint and innovate at the same time but it also is the reason we’re having the conversations we are with some of the world’s largest global financial institutions.”
One of the things that has helped Precognitive avoid falling in to this is that a lot of the team’s background experience, is with building companies and products with security in mind. Le believes that an essential part is to create a product which is a suitable for any CIO or CTO that you would be speaking to, with little rearchitecting needed when implemented.
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