By Amit Tyagi, CEO, Payworld
India’s Fintech industry has been growing rapidly in recent years, and is now one of the world’s leading centers for Fintech innovation. However, the industry is still relatively young and fragmented, and faces many challenges in terms of regulation and compliance. Pegged at $31 billion, India’s fintech market ranks third in the world, trailing only the US and China, and analysts at Inc42 are betting the market opportunity will be over $1 trillion by 2025. India’s fintech adoption rates are also some of the highest in the world, standing at 87% compared to the global average of 64%.
RegTech, or regulatory technology, is a new significant subset within the FinTech ecosystem that offers solutions to the challenges in the regulation and compliance segment of the Fintech Industry. It develops innovative technologies to help financial institutions comply with regulations more effectively and efficiently with regulations. RegTech has the potential to transform the Fintech industry in India by making it more efficient and effective. It can help financial institutions save time and money by automating compliance processes. The implementation of RegTech in the Fintech industry in India is still in its early stages. However, it has the potential to revolutionize the industry and make it more efficient and effective.
The global regtech market is expected to grow from $5.46 billion in 2019 to 28.33 billion by 2027 at a CAGR of 22.3%. A newly released RegTech Market analysis report by Future Market Insights shows that global sales of RegTech Market in 2021 were held at US$ 8.2 Bn. with 16.2%, the projected market growth during 2022 – 2032, the market is expected to reach a valuation of US$ 45.3 Bn by 2032. Cloud deployment-based RegTech is expected to be the highest revenue-generating category, projected to register a CAGR of 15.8% during 2022 – 2032. There are some trends that are likely to be witnessed in the coming months and blockchain is going to be the leading technologies powering the RegTech revolution.
Below are some ways by which RegTech can transform the Indian Fintech industry:
Enhanced security and prevention of fraudulent activities
Over the past four years, digital payment transactions have grown multifold from 3,134 crores in FY 2018-19 to 5,554 crore in FY 2020-21. With the addition of RegTech in the FinTech sector, we have clearly witnessed the rise in fraud prevention which is a key factor of the increase in digital payments, over the years. The use of Regtech solutions in the FinTech industry is helping them enhance security which is helping them in gaining the trust of the customers. This is because Regtech can provide a way to verify and validate financial transactions in real time, meaning that any suspicious or fraudulent activity can be detected and prevented immediately. Also, since the pandemic, we have witnessed a huge surge in online transactions and RegTech has definitely helped financial companies in servicing their customers with enhanced security. “RegTech is a win-win for the FinTech as the financial institutions get more and happier clients; clients receive better service; and regulators get a more stable, regulated market, with more effective enforcement.
Automation of compliance
Numerous RegTech companies now employ agile and are researching the potential for advanced analytics and assessment methodologies to begin to “learn” and aid in expediting the evaluation of new and future laws based on what has been observed earlier and how that has been interpreted. One area that has seen a significant change is the automation of compliance. There are a number of compliance-related tasks that can be automated, from the initial identification of risks to the ongoing monitoring of transactions. This can help fintech companies to save time and resources, and to reduce the risk of human error. Automated compliance can also be used to flag potential risks and to provide alerts when unusual activity is detected. The automation of compliance is a major trend in the fintech industry, and one that is likely to continue to grow in the years to come.
Improved customer experience
By making compliance easier, RegTech can help to improve the customer experience, making it more likely that they will use Fintech products and services. There are a number of reasons why improved customer experience is helping the fintech sector. First, it is helping to build trust between fintech companies and their customers. Second, it is making it easier for customers to use fintech products and services. Finally, it is helping to create a more positive reputation for the fintech sector as a whole. Improved customer experience is therefore playing a key role in the success of the fintech sector. This is likely to continue in the future as fintech companies continue to invest in customer experience.
The Reserve Bank of India (RBI) keeps on announcing new frameworks and regulations, from time to time, in order to undertake proper due diligence and ensure ethical and fair business conduct. Recently RBI announced some guidelines regulatory framework for KYC updating, loans and complaint registrations. However, so far, RegTech solutions have been mainly focused on KYC (know your customer) and AML (anti-money laundering) compliance. Therefore, the regulatory environment is still relatively nascent, and there is a lack of clarity around many of the rules and regulations. This is where RegTech can help by using technology to automate compliance, improve data management, enhance security and offer greater transparency to the customers.