An academic approach to analysing the RegTech market is quite difficult, as there is so much change happening every few weeks and the term is still quite broad - and I don’t claim any academic precision of this article. These are my subjective observations and opinions that I am more than happy to discuss with anyone so inclined.
The RegTech solutions I have encountered so far have fit into six categories:
1. Smart GRC
This is the category Alyne most identifies with - solutions that have evolved from the traditional approach to Governance, Risk and Compliance software (GRC) by applying new technology, methodology, digitisation and business models to a traditional enterprise domain. Value is generated through cost reduction, process re-engineering, digitisation of spreadsheet driven tasks and smart algorithms. Unfortunately we are also seeing some naive copy cating of established GRC software on a SaaS basis - which doesn’t add tremendous value or represent what RegTech should be about.
2. One Trick Ponies
These players have built a solution around a very specific use case or a very specific regulation - often times spin offs out of an operational business facing this very specific challenge. I’ve seen some smart ideas in this area. My question remains if these companies are content on focusing on their specialty or if they consider this solution the minimum viable product to launch with and later broaden their scope.
3. Industry Verticals
We have encountered some really amazing solutions specialising on a single industry or business type. These solutions can provide very comprehensive coverage of regulatory requirements, as they are limiting themselves to a very specific business. I haven’t done all the research to assess if the market is large enough for a sustainable business, however it provides a pretty straight forward got to market approach and sales strategy for players in this category.
4. KYC Solutions
You might wonder why these solutions deserve their own category and yes - they could be grouped into one of the first two categories, but hear me out. There are simply a huge amount of Know-Your-Client (KYC) solutions in the RegTech market. Potentially this is because KYC is something consumers immediately associate with compliance and regulation and they’ve experienced it themselves. Potentially also because traditional KYC processes are horrible and very disruptive to a modern digitised services. There seems to be a lot of dynamic on the side of regulators deciding what technologies they are willing to accept and it doesn’t seem that anyone has found the silver bullet yet. Especially in the B2B KYC area I think there’s still huge potential.
5. Pie in the Sky
Unfortunately there are also quite a few players that fall in this category. I appreciate the need for ambitious visions, but some of the ideas I’ve seen seem a bit of a stretch. Most involve the vision of automatically being able to identify regulatory requirements and use machine learning or artificial intelligence to respond to a requirement. I am confident that technology may advance to a point where this is possible, but I believe machine learning and artificial intelligence are many years away from being useful to this degree in the regulatory environment.
6. Question Marks
We have been observing a whole number of players that claim a fairly interesting value proposition, but haven’t shown any progress or signs of life in quite a long time. I believe there are a number of companies that have been propped up by initial investments through angels or accelerator programs that allowed initial exploration, but have since struggled to drive a product to market maturity. It may be that these companies are just in a prolonged stealth mode, but I’m quite certain we’re actually seeing the first of the hyped companies dying.
I’m certain there are companies that fit into more than one of the categories, however I do believe these categories cover the patterns emerging in the RegTech market. In our next blog post of the series I would like to explore some predictions for the future of the RegTech market and provide insight into Alyne’s strategy for the coming months and years.
Photocredit: unsplash.com/Dino Reichmut