Regtech 3.0 Coming Down The Pike

Thanks to new regulations and rules aimed at combating financial fraud whether its money laundering or identity theft, the regtech market is booming.

Called the new fintech in some circles, demand for digital technologies that can ensure financial firms are in compliance with the growing list of regulations has been surging. According to one estimate, the market is expected to be valued at $12.3 billion by 2023. That’s much higher than the $4.3 billion market size today. The compounded annual growth rate is forecast to be 23.5% through 2023. In comparison, the global fintech market through 2025 is expected to see growth of 74%. By 2020, regtech is forecast to account for about one-third of all the spending that goes to ensure regulatory compliance.

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It's not surprising that the market is expected to surge and is already booming. Technology is increasingly playing a role in helping financial institutions automate processes and create digital alerts when something is amiss. The last thing they want is to face fines because they ran afoul of rules and regulations. Regtech is helping them stay in compliance with new anti-money launder rules and know your data regulations among a slew of others.

As it stands, the focus on regtech startups has been to help financial services firms understand regulations, enhance compliance and most importantly reduce risk. That drives down the cost of compliance and improves protections for customers. But that’s not all regtech can offer financial institutions. In “regtech 3.0” these fintech startup companies will be able to provide business insight, driving growth and new product introductions for the customers they serve.

It's already on the minds of financial services firms. A recent study found more than 60% of institutions expect to spend more on regtech with an eye toward getting more insights out of their data. After all thanks to advanced technologies such as artificial intelligence and machine learning a lot of these fintech startups have the ability to offer financial institutions deeper insight around regulations. At the same time, the core service of making sure firms don’t get in trouble with regulators will continue to be in demand. That bodes well for regtech startup companies and their backers.