FinTech: How To Make Money In RegTech ?
Since Deloitte published the report on RegTech is the New FinTech, a lot of people have discovered the fact that large Banks and other Financial Institutions are spending a HUGE amount of money on Compliance and not to forget fines for not being compliant. Although it is true that there is a lot of new regulation coming towards the Financial Services Industry, that is not the reason why they spend so much money on Compliance.
Why do large banks spend so much money on Compliance and KYC ? The main reasons why large Financial Institutions are paying so much money on Compliance have nothing to do with the Regulators. Why ?
That is easy to answer.
* Large institutions have a huge legacy of old systems.
* Large institutions have a huge legacy in databases. Their data is stored in a wide range of different databases. Using different kinds of technologies, different structures and different data models.
* Large institutions do not have a well-designed corporate data model.
* Large institutions have large corporate organizations that have an interest in making things large and difficult.
* Large institutions work with large IT-providers and with large management consulting and accounting firms that also make problems HUGE and very difficult.
* Managers and employees of many incumbents go to conferences were everybody says ‘how horrible it all is’ and ‘that it is a curse’.
* And many people at large incumbents keep their job by telling their managers ‘how dangerous customers are’ and ‘the potential risks of having customers’.
There is money to be made in FinTech and especially in RegTech. The good news is that there is indeed a lot of money to be made in FinTech in the RegTech sub-domain. But not with most of the large incumbents. Where is the money to be made then? Well, in small companies, small and medium sized banks and in FinTech startups. By integrating commercial KYC-processes with Compliance related KYC for instance. We call that ’embedded Compliance’ since 2001. 80% of what you need for Compliance is very also interesting data and are valuable documents for your business strategy. How do I know? Because I compared the data requirements and the document requirements across the Globe during a long number of years.
So every time I help start-ups with their business plans and review their marketing strategy and business models, I say: ‘stay away from many of the traditional incumbents and go for the other client segments’. Unless you can find that real entrepreneurs are in charge at the prospect incumbent. There are a number of them out there, but be careful. Before you know it, you spend most of you precious time in meetings and providing information and answers to large questionnaires and delivering HUGE business plans…..to be rejected after 3 months anyway. Because everything in large companies is BIG. Including the meetings and the RFI’s, the RFP’s and the information you have to provide to do business with them.
So stay away from the traditional incumbents and go for the entrepreneurial incumbents and other customer segments. And help your clients to make money instead to spend it…
Ton de Bree
