Technology will account for more than half of regulatory compliance spending

Technology spending will account for more than half of organizations’ compliance budgets as the regtech revolution gathers pace.

As more and more non-banking businesses offer financial services, regtech will be in high demand. In fact, global spending on regtech will grow from $68 billion in 2022 to reach $204 billion by 2026, according to Juniper Research.

Juniper said integrating regtech into banking-as-a-service (BaaS) models will lead to a significant increase in spending.

Non-bank businesses such as retailers, e-commerce companies and distributors are increasingly looking to offer financial products to their customers and are adopting BaaS offerings to allow them to do so.

Juniper said BaaS models include outsourcing regtech services such as digital onboarding, and it found that 26% of digital onboarding processes in the banking market will use artificial intelligence (AI) systems from by 2026, compared to only 8% in 2022.

Juniper research author Harshada Thok said, “While the current benefits of AI are clear to regtech vendors, the immediate focus must be on ensuring algorithms receive the most data. relevant to maximize their effectiveness in verifying digital identities and future use cases. In turn, this will provide a point of differentiation for regtech providers in an increasingly competitive market. »

According to recent interviews with 50 senior executives and a survey of 1,600 others by financial IT software provider Finastra, 85% are already implementing banking-as-a-service capabilities or plan to do so within the next 18 years. month.

But to provide these services, they need to be regulated and have access to expensive banking technology, so companies instead use financial services offered by banks and fintechs. Application programming interface (API) based services are regulated by the bank, which also provides the technology infrastructure.

Although the financial sector dominates regtech, demand for new technology customers will emerge. According to Juniper, the next growth areas for regtech will be in the healthcare and gambling sectors.

“Regtech vendors must provide verification services in emerging areas where compliance is being disrupted, such as cryptocurrency exchanges, digital healthcare and online gambling,” the tech company said. research.

“Impending regulatory changes in these markets will present significant opportunities for regtech providers to expand their reach beyond financial markets to capitalize on new addressable user bases.”