You've Heard of Fintech, Get Ready for "Regtech"

This article originally appeared on American Banker.

How can banks better manage one of the costliest and most troublesome activities—complying with regulations? Increasingly, banks may benefit from working with "regtech" firms.

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Consumer financial services products are being transformed by the fintech revolution, but automation, data innovation and other technological efficiencies can also benefit banks' efforts to comply with a growing regulatory burden and improve their internal governance controls.

Given the high stakes, however, banks should gain a better understanding of their regtech options and make a careful assessment of which high-priority objectives they are trying to accomplish in partnering with a regtech firm. They will need to bring regulators into the conversation before committing to such a partnership. And they must ensure that combining third-party technology and services with their internal processes does not create more system complexity.

Bain & Co. has identified more than 80 emerging regtechs. The rise of these firms should be welcome. Banks have been reducing their cost base for several years now. Many of the efficiency gains, however, have been offset by resources required to meet expanded regulatory requirements and to settle fines. We estimate that governance, risk and compliance (GRC) costs account for 15% to 20% of the total "run the bank" cost base of most major banks. GRC demand drives roughly 40% of costs for "change the bank" projects underway.

Read more on American Banker.

Matthias Memminger is a partner with Bain & Company's financial services practice. Mike Baxter leads the practice in the Americas. Edmund Lin is the global leader of the practice. They are based, respectively, in Frankfurt, New York and Singapore.