Is RegTech bucking the economic downturn trend?


A recent discussion hosted by Clausematch has found despite the global economic downturn, regulatory technology is maintaining its attractiveness amongst investors.

Leaders from Lytical Ventures, Talis Capital, Flashpoint VC and the Sony Innovation Fund took part in the discussion.

Currently, the global RegTech market is expected to reach $10.1bn in size by the end of 2022, according to a recent Future Market Insights report, which is an increase compared to 2021. In comparison, FinTechs like Klarna have devalued in valuation, with the company dropping from $46bn to $6.7bn.

Lytical Ventures partner Steve Berg said, “It’s natural in a recession environment to reassess the risks companies take. We are experiencing a natural slowdown, but you can’t invest less in compliance. You don’t have a choice.”

Sony Innovation Fund senior venture capital investment manager Constantino Mariella added, “B2B SaaS is currently suffering a drop in valuation. This is reflecting in the target market as well. However, RegTech has been under the radar compared to the biggest sectors suffering less valuation increase. RegTech has suffered less hype and will suffer less drop in valuation accordingly.”

CEO of Clausematch Evgeny Likhoded also remarked, “It’s been interesting to watch and speak to investors recently. We have never had so much demand in a round of investment than we have now. Because, in the macroeconomic slowdown, compliance is not optional.”

The panel all agreed that after 10 years of generating capital, the push to consolidate some RegTech firms is inevitable.

“On the one hand, there is this push to go for one company that can manage five products. There are so many solutions to make it easier, faster, and cheaper. So eventually there is undeniable consolidation coming,” said Vasile Foca, co-founder and managing partner at Talis Capital.

He continued, “And on the other hand, RegTech is not immune to the Amazon effect. For instance, onboarding Revolut takes three minutes. People are used to onboarding fast and are very well connected with smartphones. It means that compliance also needs to be fast to ensure this speed.”

Clausematch remarked that the industry continues to see breakneck advances coming to the marketplace by a range of firms. Yan Shtefanets, VP of Product at Cl, remarked with thousands of complex regulations published every year, connecting data through AI has proved beneficial.

“AI could start helping us by transforming unstructured data into a more consumable format so we can easily identify relations and connections in compliance content,” said Shtefanets. “We can digitise compliance content and connect the dots with AI.”

Compliance expert Melanie Wright said, “If you have a hope of surviving the avalanche, you have to do something. The regulators never sleep, the old ways of relying on the subject matter expertise of the few people who have worked for your organisation is not just going to cut it anymore. There is a real need to digitise that regulatory management role because it goes across many roles in your organisation.”

Likhoded concluded, “Regtech and compliance solutions are very, very stick. Our gross retention revenue is 99%. Net retention revenue is over 100%. Most of our contracts are three year contracts. Yes, growth matters. Yes, revenue matters.

“The recurring revenue matters. But you can also show your contract value…your customers don’t leave the solution. So, it’s a very resilient offer to the market. It’s a company that you are not going to see churn.”

The full recording can be found here.

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