How FinTech And RegTech Are Transforming The Financial Industry

FinTech is the application of new technologies by financial institutions to connect and better serve consumer and business customers. FinTech has permeated throughout virtually every department including consumer banking, business lending, online banking, trading, and wealth management

With the widespread use of mobile devices such as smartphones, laptops, and tablets, FinTech applications can be utilized in virtually every financial transaction. Two–thirds of consumers between the ages of 18 and 29 have a mobile phone and use mobile banking.

Some of these transactions include grocery shopping, online purchases, wire transfers, or any B2C or B2B transaction can be settled via a financial technology. Payments between businesses and consumers can now be made quickly and seamlessly.

“FinTech puts financial change at consumers’ fingertips.” – The Federal Reserve

FinTech’s Limitless Opportunities:

Personal finance applications of FinTech include online budgeting and tracking of expenses and income. Automated savings applications help consumers plan for retirement and college. Financial advisors utilize Fintech for employing investment strategies and portfolio monitoring.  

FinTech improves the lending process by reducing the cost of underwriting through automation of the credit application process. That process includes the review of the credit application, credit score monitoring, and the collection of financial documents.   

Lower underwriting costs result from improved loan processing turnaround times and fewer human errors. With a less labor-intensive underwriting process, the potential for substantial operational cost savings exists with Fintech.  

Credit standards and trading limits are monitored more efficiently as Fintech applications can be created that employ customized credit standards per the bank’s risk-management policies. Other applications include position monitoring of capital markets transactions, enabling real-time monitoring of trading-limit violations. As a result of Fintech, a financial institution’s credit and trading policies can be managed holistically and more efficiently; thus reducing the overall balance sheet risk of the firm.   

Improved sales opportunities exist with Fintech as applications can be applied to marketing efforts targeting potential customers. Whether a financial institution is looking to cast a wide net in hopes of attracting new clients or instead, target niche markets, Fintech has the potential to enhance the prospecting efforts of the bank and improve the new client onboarding process.

With today’s widespread use of technology throughout society, Fintech has the potential to impact nearly every financial transaction, transforming how consumers, businesses, and financial institutions interact and transact.

RegTech: The Regulatory Spinoff From Fintech

Just as FinTech helps banks connect with customers via technology, RegTech helps banks meet regulatory requirements via technology.

RegTech utilizes various technologies such as machine learning and artificial intelligence to establish enterprise-wide data governance and reporting. These new technologies replace the current manual processes for modeling and reporting.

With the ever-changing regulatory landscape, RegTech enhances the ability for institutions to remain compliant with critical regulations such as the Bank Secrecy Act (BSA), including know-your-customer (KYC) and suspicious activity reporting. RegTech also simplifies the data-reporting requirements under a number of regulations including such as Basel 3, CCAR, and MIFID II to name a few.

Just as FinTech helps institutions manage their internal credit and trading standards, RegTech enhances their ability to adhere to the government’s regulatory rules set out by various agencies and The Federal Reserve Bank.

How RegTech Helps Your Institution Achieve Compliance:  

Reduction of time needed for client onboarding and identifying potential threats from money launderers and terrorist organizations. As a result of digitizing the KYC process, more consistent adherence to regulations has resulted, since the process is less manual and time-intensive.

Fewer fines and litigation costs are possible with RegTech applications. And with fewer compliance violations, financial institutions reduce the chance of reputation risk associated with data or cybersecurity breaches as a result of inadequate compliance monitoring.  

Adapting to new regulations faster can be achieved with RegTech as financial institutions can monitor changes in regulations in real-time. As a result, implementation of changes to internal policies can be applied enterprise-wide in a fraction of the time it takes for them to be implemented manually.  

Improved data analytics can be realized with RegTech techniques. Through data analytics, institutions are able to create a more in-depth look at their client’s financial history both in-house and activities elsewhere.  

Regulatory reporting times improve with RegTech. Just as technological applications enhance the efficiency and speed of new client onboarding, these applications also improve the efficiency of reporting of suspicious activity to regulators. Through the use of innovative technologies, financial threats and crimes are identified and reported sooner. Once reported, RegTech aids in the monitoring of suspicious activity and fraud such as money laundering and terrorist funding. The result is that RegTech helps in early identification and ultimately with damage control for financial institutions.   

The Tech Revolution Has Just Begun

FinTech enhances the ability for consumers and businesses to monitor their financial transactions, save, and invest. RegTech, on the other hand, enhances the ability for institutions to monitor that client activity for regulatory violations. And just as FinTech reduces the time and cost involved in financial transactions for banking clients, RegTech minimizes the time and operational costs of implementing, monitoring, and meeting both compliance and regulatory standards.  

Although technological innovations have leapt forward in recent years, the advances are not necessarily disruptive. Just as these technologies have helped customers, regulators, and banks transact and interact more easily with each other, the new techs also present an opportunity for banks to enhance their capabilities. Tech innovations will help in enriching an institution’s operating model allowing them to achieve higher efficiencies and greater performance rather than completely replacing the banks.

Technology developed in isolation from bank models doesn’t go far enough in solving the challenges in today’s market. It’s important to involve an SME from the bank and supervisory bodies in the initial phases of developing the technological innovations. Ideally, the ultimate goal of FinTech and RegTech advances is to improve collaboration and communication between institutions and regulators, a win-win strategy for both.

Meet The Newest Tech: SupTech

Improving efficiencies of regulators and how institutions benefit from those advances.