RegTech funding in India soars five times as FinTechs get regulated

Image result for regtech infrasoftEven as the Indian FinTech ecosystem continues to get regulated with newer laws, the investments into the Regulatory-Tech or RegTech startup space also continues to grow. As per a data provided by startup research and intelligence firm Tracxn, the private investments into the Indian RegTech space has increased by over five times at US $43.5 million in the year 2019 so far, compared to a mere US $7.26 million in 2018.

RegTech is an efficient and cost-effective way of  management of regulatory processes within the financial industry with the help of technology. RegTech helps financial institutions with regulatory monitoring, reporting, and compliance with the use of cloud computing technology through software-as-a-service (SaaS).

Some of the top funded RegTech startups in India are Simility, CrediWatch, Digio, Fintellix, DotAI, NextKYC, Credible Ninja and among twenty others providing solutions ranging from e-KYC verification, fraud detection, financial scoring, KYC compliance, AI-based financial risk management to anti-money laundering and CRM tools., as per the Tracxn data.

According to experts tracking the industry, India has been at the forefront of financial technology adoption but at the same time the Fintech’s get tangled with issues related to regulations and compliance which impacts disruption and at times leads to casualty among the startups.

For example, the Reserve Bank of India had, in 2017, came up with stricter and mandatory guidelines with regards to KYC (know your customer) rules, which adversely impacted the players in the segment. While well-funded companies with in-house RegTechs survived, over a dozen players shut shops, Experts feel that the companies could have survived with better RegTech solutions in place. However, things are changing and the FinTech players are looking for solutions that can help them mitigate the risk by enabling greater accountability and transparency.

Exponential growth in the digital transactions in India in the last few years has also made it imperative that anti-money laundering solution and financial crime surveillance solution be implemented in the financial firms to monitor transactions for any fraudulent activities and report in real-time. Hence, the solid and consistent demand of RegTech in India is an indication of the crucial role it is set to play in safeguarding interests of the financial institutions along with delivering substantial ROI through effective risk and compliance management and facilitating KYC management through AI and automation.

While companies are realising the importance of RegTech, the Indian regulators have also started to acknowledge the issues. Recently, India’s capital market regulator SEBI has announced setting up a committee to understand the usage of RegTech in the country.

Abhishek Kothari, Co-Founder of, a MSME lending startup, said that, “God favors those who are prepared. With the increasing cost of risk management and compliance, it is imperative to deploy technology and analytics to be readily compliant in a new more regulated financial services world. RegTech is a natural answer to a problem that every regulated entity faces.”

“Given the direct impact on the cost of compliance, losses due to insufficient risk management and potential penalties, Regtech startups should not find it difficult to get buyers for their solutions,” he said adding that the annual cost of compliance goes to about US $70 billion worldwide, growing at a rate of 14% annually, a potential business of us $100 billion is expected in the RegTech industry by 2020.

Rajesh Mirjankar, MD and CEO of Infrasoft Technologies Ltd, a IT solution provider to banking and financial institutions, said that the regulatory non-compliance can be an “extremely murky and costly affair”,  besides putting the reputation of a company at risk. Besides, several banks together have paid a whopping US$ 321 billion in fines for non-compliance since the financial crisis that broke out in 2008, he said quoting an industry report.

He also said that, besides non-compliance, cyberattack is emerging as a bigger challenge for the banks and FinTechs and that the financial institutions need to invest in RegTechs that will help in mitigating such risks so that the companies can focus on their growth instead.

“…if the regulator breathing down the neck is not enough, banks also have cyberattack mercenaries who are constantly looking for their next victim. Notable cyberattack mentions include Notpetya and Wannacry.  Also, unsuccessful attacks have now been attempted not only at the banks but also at the regulators and government agencies themselves,” Mirjankar said adding that financial firms across the globe are imposed with complex and stringent timelines on anti-money laundering and financial crime surveillance.

Hence keeping in mind, the growing regulatory requirement and consequences of non-compliance, firms globally have realised the importance of RegTech and are investing heavily in technology to prevent any fraudulent incidents and be compliant.

As per a market report, the global RegTech market revenue was US $2.3 billion and is expected to reach $7.2 billion with a CAGR of 25.4%.

However, the adoption rate of RegTech is not uniform across the market. Europe has the highest adoption rate due to the strict and mandatory rules and regulations for financial transactions and data protection. But in coming days, Asia Pacific is expected to have a significant growth in RegTech due to the presence of emerging countries such as India, Singapore and Hong Kong.

“India is the fastest-growing economy has also adopted the global regulatory requirement around anti-money laundering and financial crime surveillance. Furthermore, Reserve Bank of India (RBI) mandates all banks and other financial entities to manage KYC norms as per the RBI standard benchmarked around global KYC standards,” said Miranjkar of InfrasoftTech that has developed Univius RegTech suite of solutions.

Univius has been developed with the help financial firms across the globe to accelerate and enhance their financial crime surveillance and regulatory processes such as managing regulatory changes, anti-money laundering, enhanced due diligence for customers (EDD), risk reporting, anti-fraud and tax compliance reporting. Univius is being used by over 220 financial institutions across 52 markets globally.

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