Banks and Financial institutions operate in a highly regulated environment; these regulations are continuously amended to safeguard the financial systems and various stakeholders, most important of them being the customer. As technology continues to evolve extensively, regulators are often playing catch-up. The balance between a Regulator’s needs and the technology excellence that keeps pushing the industry forward - is the Regulatory Technology (RegTech) space. Product complexity, diversity, evolving compliance landscape, and the need to maintain a competitive edge - demand seamless technological solutions.

Most regulators are wary of the increase in fraudulent activities including money laundering, identity theft, data breaches, cyber hacks etc., that accompany the adoption of digital channels. A personal intervention (meeting the customer in person, visiting their home or office, getting hand-signed documents, etc.) are seen as risk mitigation strategies, expensive as they are. A single customer visit adds Rs. 150-500 to the overall customer acquisition cost, and, sometimes, several days in process turnaround times (TATs). RegTech solutions (involving complex integrations, APIs, computer vision, NLP, OCR, Big Data Analytics, Artificial Intelligence and Machine Learning) are focused on solving these challenges, without increasing the cost of regulatory compliance or the associated business risks. Interestingly, RegTech has not received as much investor attention over the last few years, as one would expect in a country like ours. This seems set to change. RegTech is well on its way to becoming the next big thing in the financial space, expected to yield an impressive sector wide CAGR and record revenue this year. 

COVID19 and its consequences have brought specific RegTech opportunities to centre stage - digital onboarding in the wake of social distancing, data privacy, personal data protection, customer interest, identity risk management, online dispute resolution, and much more.

Leveraging Video as the future of customer engagement

Banks and RBI regulated financial institutions started first with Video based customer identification processes, (Video-KYC) to transform customer onboarding processes hindered by the lockdown. V-CIP allows customers to undergo a virtual on-boarding journey, without the need of any physical interaction. It also retains the personal empathy of actually speaking to an agent/ service representative over a video call so that a customer can be handheld through the onboarding process.

Extending the learning from this phase, other regulators such as IRDAI, PFRDA, SEBI etc. have also augmented their guidelines to use Video based customer onboarding. Many of these guidelines very clearly ease the challenges faced by the industry, while at the same time standing true to the regulator responsibilities towards protecting end-customer interest.

There is a growing school of thought around how video can be the next big thing in customer servicing, assisted/ humanized digital commerce/ and many other industry use-cases.

Filtering Customers for a Healthier Credit Environment via Account Information Service Providers

Regtech can also support Account Information Service Provision, which allows customers to give permission to banks to release account information to the AISP. This information can be analyzed as part of credit scoring, part of the bank’s decision-making process for lending, or for better product offers.

This can be done in real-time and offers a more sophisticated view of the customer’s financial position than a traditional credit check, allowing the bank to make more prudent decisions. This in turn leads to better disbursements of loans and rejection of fraudulent borrowers.

Enabling better compliance with regulatory reporting: Saves costs for banks

An important growth area for RegTech is regulatory reporting. This addresses the problems caused by multiple data sources, systems, and errors arising from manual review. A RegTech solution can compile standard comprehensive reports from multiple data points. This saves banks a considerable amount of time and effort, freeing up the workforce to concentrate on more skilled and value-added tasks. Moreover, standardized reporting is also convenient for the regulators themselves to analyze. 

Regtech not only has immense benefits for customers and regulators, it has the potential to help firms save resources at a time of increased uncertainty. Experts estimate digitising paper reporting could save billions in administrative costs. From a compliance perspective, RegTech solutions also offer Indian businesses the flexibility to and scalability needed to adjust to new global standards like BASEL 3, GDPR, critical as clients become increasingly global.

Although, the pandemic is forcing businesses towards RegTech solutions, it will likely turn into a blessing in disguise in the long-term, as the impacts of systematization, better reporting, and more flexible KYC make themselves known. RegTech is here and it is the future of the Indian finance sector.