Spending on regulatory technology (regtech) will triple to US$204bn and make up more than 50% of global regulatory compliance budgets by 2026, according to Juniper Research.
The new research, Regtech: Emerging Trends, Regulatory Impact & Market Forecasts 2022‑2026, predicts that BaaS models, which include outsourcing regtech services such as digital onboarding, will be key in accelerating AI-based automation for online document verification and KYC (Know Your Customer) processes.
Expanding the use of technology in banking
AI-powered onboarding enables financial institutions to benefit from real-time progress reporting and automation, which help meet rising client expectations and reduce compliance cost.
According to the research, 26% of digital onboarding processes in the banking market will use AI systems by 2026, compared to just 8% in 2022. Beyond digital onboarding, the report suggests that regtech will leverage BaaS models to swiftly expand the use of AI in banking for more comprehensive tasks, including fraud detection and mitigation.
Recent interviews with 50 senior business executives and a survey of 1,600 more, carried out by financial IT software supplier Finastra, 85% are already implementing banking-as-a-service capabilities or plan to do so in the next 18 months.
Research author Harshada Thok explains: “Whilst the current benefits of AI are clear to regtech vendors, the immediate focus must be on ensuring the algorithms are fed the most relevant data to maximise their efficiency in verifying digital identities and future use cases. In turn, this will provide a differentiation point for regtech vendors in an increasingly competitive market.”
The growth of regtech
Last year the UK’s Financial Conduct Authority (FCA) commissioned research into the sector, and found 43% of those surveyed saw increased demand for regtech. The FCA’s survey also found 95% of businesses which use regtech were satisfied with it – although 41% also said communication from regtech firms, and integration of regtech, could be better.
Although the finance sector dominates regtech, demand from new customers of the technology will emerge. According to Juniper, the next growth areas in regtech will be in the healthcare and gambling sectors.
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