With the fintech industry, particularly the paytech sector, constantly changing, evolving and innovating, the regulatory environment also sees an increase. Regtech solutions become crucial for those in the sector as they help businesses manage these ever-increasing regulatory requirements.
Tanya Naik, Head of Online & Omnichannel Busines at Pine Labs, a merchant platform company that provides financing and last-mile retail transaction technology to merchants. Here she shares her thoughts on how regtech is the cornerstone for building Omnichannel businesses
Over the last 5 years, India has seen a complete overhaul of the digital payments landscape. Innovation in payments such as UPI, IMPS, AEPS, Bill Payments, QR, C-KYC on the backing of a centralised payments stack via NPCI is a first across any global market. India’s galloping rate of adoption can be attributed to a conducive regulatory environment and the continual promotion of digital payments.
While the rate of growth and the changes brought in are commendable, it brings with itself a surge in regulatory reporting and compliance to monitor bad actors in the system, especially since one is dealing with sensitive personal financial information for lakhs of consumers. My assumption is, it would take over 2000 hours for one individual to read all regulatory materials for banking and payment system operators in India (at a reading speed of 200 words per minute). Coupled with this is the problem of understanding and interpreting regulations itself which adds to significant cost and people impact.
Regtech helps in automating, streamlining and improving the management of such regulatory requirements. It is a result of financial expertise and understanding of regulations bundled with technology that provides accurate dissemination and implementation of important guidelines. For instance just digitising paper reporting could save millions in administrative costs. Further, it offers technology solutions for easy implementation of guidelines. Lets take an example here: Any individual, business or financial institution has dealt with a highly expensive activity known as KYC (Know your Customer) i.e. the process of onboarding the customer with the financial institution. Regtech has acted as a saviour to this setup, with real-time document verification, video-based customer identification processes, OCR, Big Data Analytics, ML.
For omnichannel businesses with multi location-based operations, transaction monitoring such as trade and eCommerce surveillance, identity management and control, risk management, regulatory reporting, compliance process monitoring, accounting, tax changes, are costs one cannot ignore. But, the trick is to not just look for smart new tech. One must look at process and systems too.
Based on your company’s growth plans, one can decide to incorporate regtech at any of these phases:
Phase 1- Manual: As the name suggests, this is defined by manual data capture tools(Eg: MS Excel). These tools help firms manage content and data centrally and provide a basic audit trail.
Phase 2- Workflow Automation: Firms can leverage software for regulatory reporting, maintaining audit trails and automate compliance tasks. Technologies range from NLP to search records, certify they are compliant, and create a digital audit trail for regulators to securely access data.
Phase 3: Continuous Monitoring: This is the most evolved form of regtech. Continuous transaction monitoring helps provide enterprise security, fraud prevention, and ensuring information security standards (ISO) are met. One can also utilise data analytics to correlate and analyse behaviours to predict and prevent fraud.
Looking ahead for regtech:
- Cloud solutions: Innovative cloud-based services and niche deliveries will be the norm for implementing regtech solutions.
- Digitisation of regulations: Digitalising text-based compliance into workflows will extremely powerful. Smart policies can be implemented, by blocking or passing actions based on the law. Such rules ensure across-the-board regulatory compliance for various business types, industries, geographies and other laws.
- Accurate analysis of reg on business: regtech is fast becoming essential for measuring the regulatory impact and viability of business decisions and commercial initiatives. With the right solutions in place, high-risk factors can be identified at the click of a button as well as the regulatory impact on the chosen business strategy.
- Enables banking compliance: As the cornerstone for financial payments, regtech positively impacts banking. They can comply with relevant regulations such as KYC, AML/CTF in a more intuitive, accurate manner. Through API technology, organisations can “plug in” the compliance function into the existing business infrastructure as a compliance layer.
- Wider adoption from the regulator(s): As regulatory pressure builds up, one can expect country regulators to make use of regtech to digitalise and decode lengthy regulations. Regtech’s capabilities can assess case-specific risks and make available global databases at various touchpoints, such as while forming new business relationships or making checks against trade-based money laundering.
- Smart tools for cross-border risk management: Regtech offers a single interface for monitoring cross-border business activities. Ambiguous explanations can be simplified, industry do’s or don’ts digitalised and machine-readable rules integrated into the workflow, for automated transaction-based cross-border.
To summarise, regulations are constantly changing and so are the bad actors, but the right technology and processes will easily adapt to any change; Increased pressure for cost savings risk reduction and competitive advantage are compelling companies and financial institutions to tap onto regtech’s transformative potential. An investment in compliance goes a long way in eliminating millions of dollars of write off at a later date.