A video created by Deloitte Consulting some moons ago aptly describes why Regulatory Tech or RegTech as it was affectionately called would go beyond being just a part of FinTech. In other words, it has moved way beyond being just a buzzword half-a-decade ago, thanks to ever-increasing costs of compliance coupled with the growing list of stringent regulations in the entrepreneurial world.
Today there are several players who offer these solutions with real-time compliance analytics that support enterprises and regulators while protecting consumer interests. One such name is Bahwan CyberTek, a player that ideates on new regulations and risk management principles and brings innovative solutions to meet the ever increasing demands of compliance within the financial industry. In an exclusive interaction with CXOToday, Jaya Vaidhyanathan, CEO, BCT Digital, explains why RegTech is on the rise and why it matters in the age of compliance.
CXOToday: Do you think the world is ripe for a RegTech revolution just like fintech?
Jaya Vaidhyanathan: The last big wave of disruption in industries like BFSI was digital, which has played out beautifully in terms of power to the customer. Almost all transactions can be completed online and the need for customers to visit their banks has minimized. This has indeed put a lot of pressure on banks to remain competitive and the net result is an overall improvement in service quality from the sector as a whole. However, the focus on customer satisfaction cannot yield results without a commensurate focus on the financial institutions’ health. This is where RegTech comes into play, and we believe this next wave of disruption will transform the industry yet again, with the growth of the economy being fueled by lenders who are themselves in good health.
The global RegTech market revenue is estimated to be $2,321.5 million in 2018 and is expected to reach $7,207.6 million by 2023, growing at a CAGR of 25.4% during the forecast period 2018–2023. The solutions include compliance management, reporting, identity management, and risk management. The compliance management solution segment is expected to grow at the highest CAGR during the forecast period. For RegTech to succeed, it is vital to understand the risks involved, as well as cutting edge technology including the likes of AI/ML and blockchain, whose computing power can be a force multiplier in processing large volumes of data and comprehending the results intelligently. Bahwan CyberTek anticipated this wave in early on in 2014, and the result was a new age Risk Management Suite, rt360 which is running today in banks across the world.
CXOToday: Could you elaborate on the benefits that RegTech entails?
Jaya Vaidhyanathan: Recent banking reforms are forcing the industry to relinquish age-old techniques of data analysis, modelling, and adopt more rewarding technologies. One reason is that, with digitization, the volume of data has been increasing exponentially. The technology available with most banks is not adequate enough to process all of this data being generated at an unprecedented pace. So, not only is an alarming amount of data going to waste, along with it, valuable insights are being lost to the industry. Luckily, RegTech brings in technology advances like big data, AI/ML, fuzzy logic; natural language processing (NLP) based analytics that has facilitated the creation of tools that can handle such data.
Benefits accruing from RegTech revolve around being as close to the real world as possible. There are symptoms and signals of fraud that are hidden, yet dormant. These indicate the potential for corporate frauds, banking frauds and liquidity crises. RegTech constantly listens to customers’ activity within the bank and outside and proactively helps identify red flag accounts, as it is usually too late once an account reaches the NPA stage. Recovery of full credit amount has always remained a pipe dream for bankers.
CXOToday: How ready are Indian companies to onboard RegTech and harness it to its best?
Jaya Vaidhyanathan: The success of RegTech depends on two factors – technology readiness and attitude towards risk. In the former, good data management practices are a key to success, which is a complex process involving understanding technologies, managing multi-level integrations, ensuring the sanctity of data, and setting up streamlined operational procedures for the same. The latter is achieved by ushering in a cultural transition within an institution. While regulatory push can certainly set banks on the path of technology adoption, making it integral to the work culture takes a lot of effort.
Hence, technology partners must take it upon themselves to educate banks on the nuances of the business applications of RegTech. That is, a RegTech implementation must not be seen as an IT project within the bank but one which has an active focus from the business teams. This has been a focus area for BCT Digital as well. Through our flagship product suite rt360, we have been making valuable contributions to Make in India and reverse innovation. The suite, built by the bankers-turned-solution-architects, is underpinned by a “Business First, Technology Agnostic” approach.
CXOToday: How are you making a difference in the already crowded industry?
Jaya Vaidhyanathan: We have been the pioneers in the Credit Risk Management space with the first-ever product to tackle NPA holistically. Our product rt360 is currently running in several banks in India, Middle-East and the USA. What started as a product to track and reduce NPA’s has now transformed into a product portfolio that addresses all types of risks a bank faces, including Model Risk, Operational Risk, Technology Risk, and Liquidity Risk, not just in India, but across the globe. We have had the specific advantage of being an established player at the same time the FinTech has been able to function as a nimble start-up and bring innovative state of the art solutions for these large banks.
CXOToday: What plans do you have for 2020?
Jaya Vaidhyanathan: From a business point of view, we want to be the global leader in risk management and we will continue to leverage smart technologies to enable it. Our goal is to stay focused on using disruptive technologies, like, AI/ML, Predictive analytics and Blockchain, to solve banking challenges, and it is this focus that has helped us go deeper into multiple areas within risk management. In 2020, we will continue to work with financial institutions on the next wave of FinTech innovations in the Risk Management Space. We will continue to explore this area with a specific focus on offering these products for the NBFCs, HFCs.