How AI and machine learning are driving RegTech innovation
The pace of digital transformation means that, throughout the global finance industry enterprises face an increasingly complex regulatory landscape.
In particular, the explosion of technology-driven financial solutions over the last decade has created complications in the space faster than they can be solved.
Given the speed of these changes, the global regulatory framework has also fractalised, increasing in complexity faster than enterprises can adapt.
Between 2008 and 2016, there was a 500% increase in regulatory changes in developed markets. Today, it’s estimated that a new regulatory update is made every seven minutes.
It should be little surprise then, that since 2015, the RegTech industry has grown out of virtually nothing to become one of the most dynamic financial verticals in the world.
By 2027, global RegTech spending is expected to exceed US$21.7bn and, according to a 2018 report by Medici, “an end-to-end RegTech implementation promises 634% in ROI realisable over a three-year period.”
In a report released earlier this year, global consultancy and accounting firm Deloitte asserted that, “RegTech promises to disrupt the regulatory landscape by providing technologically advanced solutions to the ever increasing demands of compliance within the financial industry.”
Key technologies advancing the sector are AI and machine learning. In particular, these mean that companies using RegTech can increasingly automate processes like due diligence, data management ananalysis.
According to a recent report, 2018 was the largest ever year of investment in RegTech, with deals attracting $4.5bn globally and more than doubling in value over the course of the year.
Examples of how technology innovation are driving change, include innovative RegTech, Shield , a Tel Aviv startup that specialises in reducing compliance risks through intelligent automated reporting.
The company’s platform, for example, uses AI to automate and orchestrate the complete communications compliance lifecycle, mitigate risk and make surveillance both efficient and driven by ROI.
Compliance is by far the largest subcategory of RegTech companies, with about three times as many as any other field.
This comes as no surprise, since compliance is the very basic core competency of any regulatory enterprise.
Darktrace is one of the world’s leading AI companies, and the creator of its proprietary Autonomous Response Technology.
This is modeled on the human immune system and won first place at the 2019 Fortress Cyber Security Awards.
Compliance with regulations like GDPR, HIPAA, and the DFS Cyber Security Regulations adds another dimension to the extensive list of challenges facing security teams.
Thanks to its ability to identify and contain threats in seconds, aid in the investigation of attacks, and provide complete visibility of digital activity across the business, Darktrace’s AI enables organisations across all sectors to comply with industry-specific and international regulations – without purchasing additional tools.
Stripe backs Step - the digital bank for teens
The Series C round raised US$100m in capital from a number of backers, including Coatue, TikTok star Charli D’Amelio, actor Jared Leto, and Will Smith’s Dreamers VC, for the enterprise.
Step provides a free FDIC-insured bank account and Visa card to teenagers. The accounts are backed by Evolve Bank and there is no subscription charge for its usage. Users don’t pay for their accounts and there are also no overdraft fees.
The mobile banking app enables parents to set controls and limits on spending and encourage responsible finances. According to data released by the company, 88% of the platform’s users say this is their first bank account.
To date, Step has seen great success in the marketplace. The company has raised more than $175m from investors and now has 1.5m users.
Stripe, which was founded by Irish brothers Patrick and John Collison, previously led Step’s $22.5m Series A round in 2019.
Step's Series B funding round also brought in $50m, and has a distinctly celeb-tinged reputation with investors including Justin Timberlake and the pop duo The Chainsmokers.
Users get access to a free, FDIC-backed bank account, a spending card and P2P payments platform to send and receive money instantly.
CJ MacDonald, chief executive of Step, said the company is aiming to improve the financial futures of the next generation. “Step is the only banking platform that enables teens to start building a positive credit history before they turn 18 and does not charge fees of any kind.
He has previously spoken about the importance of financial literacy for young people. “Money is just one of those things where I think the more educated and equipped you are early, the better decisions you can make down the road,” he told . “And you can also prevent yourself from making costly mistakes. I mean, the average American doesn't have $400 in emergency savings and pays $350 a year in banking fees. If we can help this next generation just ultimately be smarter and more educated as it pertains to money, I think we'll all be better off.”
Kyle Doherty, managing director at General Catalyst and Step board member, explained, “Gen Z is flocking to modern financial solutions that can be easily embedded within their digital lives and Step has a unique model for how to do this right.”
The news follows on from Stripe’s recent announcement that it plans to acquire TaxJar. The fintech, which builds software for online businesses that automates the reporting and filing of sales taxes, will most likely be integrated with Stripe’s billing services.
Currently, No terms have been disclosed but the Boston start-up had raised more than $60m from investors including Insight Partners.
Stripe chief financial officer Dhivya Suryadevara said of the move, “With TaxJar, we will help millions of internet businesses running on Stripe with their sales tax and make it easier for them to sell internationally.”