Regulatory technology, or regtech, is an emerging field focused on leveraging technology to enhance regulatory processes and compliance requirements. Regtech startups are gaining traction in India as companies look for innovative ways to navigate the country’s complex regulatory landscape efficiently and cost-effectively.
Why Regtech is Important in India
India has over 60 financial regulators and agencies that govern various sectors and industries, including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and more. Complying with the extensive regulations like know your customer (KYC) norms, transaction monitoring, fund transfer limits etc. is a massive challenge, especially for smaller companies with limited compliance resources.
According to a report by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), nearly 40% of Indian companies spend over $500,000 annually on compliance, while 28% spend over $1 million. High compliance costs lead to operational inefficiencies and penalties due to non-compliance.
Regtech solutions leverage advanced technologies like artificial intelligence, blockchain, cloud computing and data analytics to streamline compliance procedures. They help automate manual reporting activities, provide real-time regulatory intelligence, enhance fraud monitoring and enable seamless data sharing between regulators and regulated entities.
According to a PwC report, global financial institutions are expected to spend $70 billion on regtech solutions by 2020. India is likely to contribute significantly to this spending as local regulators like RBI and SEBI are advocating adoption of regtech.
The Regtech Startup Ecosystem in India
India’s regtech landscape has over 50 startups offering innovative solutions for sectors like banking, insurance, capital markets and financial advisory.
Major Regtech Startups
Some prominent regtech startups in India include:
- Signzy (Founded 2015): Uses AI-based e-signature workflow to provide paperless KYC and digital documentation. Major clients include Reliance, HDFC and Kotak Mahindra. It raised $5.4 million in Series A funding from Arkam Ventures and Mastercard in 2019.
- IntelleWings (Founded 2015): Analytics platform for transaction monitoring and surveillance to detect fraud and compliance violations. Customers include Max Life Insurance, RBL Bank and Karur Vysya Bank. It raised $2 million in Series A funding in 2018.
- AnnieTech (Founded 2014): AI-driven product suite for client onboarding, transaction tracking and risk management. It was acquired by US regtech player AppOrchid in 2019.
- Gieom (Founded 2012): Regtech platform providing real-time regulatory change management, compliance task tracking and audit support. Used by Wipro, Infosys and TCS. It raised an undisclosed amount from Blume Ventures in 2017.
Regtech Investments
Leading banks like ICICI, HDFC and Kotak are proactively partnering with regtech startups to integrate their solutions for streamlining KYC, AML monitoring, risk management and regulatory reporting.
Major venture capital firms like Blume Ventures, Quona Capital and Accel are actively funding promising regtech startups across KYC/AML, fraud prevention and compliance automation domains.
Regtech associations like IRTISS are also promoting India’s regtech ecosystem through events, education, research and advocacy.
Key Drivers of Regtech Adoption in India
Several factors are catalyzing the adoption of regtech in India:
Complex Regulatory Environment
India has multiple regulators like RBI, SEBI, IRDAI overseeing different segments, with complex and continuously evolving compliance rules. Agile regtech solutions can help financial firms quickly adapt.
Government Support
Government initiatives like Startup India, Digital India and India Stack are supporting development of homegrown regtech solutions capable of handling India’s unique regulatory challenges.
Push for Digitization
Guidelines by RBI and SEBI promoting digital onboarding, e-KYC and paperless processes compel businesses to implement compliant regtech systems.
Rising Tech Innovations in Overall Finance Sector
Innovations in Digital payment processing, wealthtechs, Insurtechs and recent PPTFC demands for stringent regulatory frameworks and compliances for secure transactions.
Rising Compliance Costs
Managing regulations manually inflates compliance costs significantly. KPMG estimates that compliance costs consume 5-10% of Indian companies’ revenues. Adopting regtech solutions can help optimize this spending.
Covid-19 Impact
Social distancing norms require digital tools for remote customer onboarding and paperless compliance – creating massive demand for regtech solutions.
“Regtech innovation will be critical as India establishes itself as a financial services hub. Homegrown regtech startups can develop solutions tailored for our unique regulatory environment.”
Smita Aggarwal, Partner, Bain & Company
Key Regtech Capabilities for India
India’s complex compliance ecosystem necessitates regtech solutions with specialized capabilities:
Digital KYC
- AI-based instant KYC verification against official identity databases
- Biometric e-KYC for remote customer onboarding
- Automated reconciliation of KYC records across regulators
Transaction Monitoring
- Advanced analytics and machine learning for real-time fraud detection
- Risk scoring models for flagging suspicious transactions
- Intelligent case management tools for AML investigations
Regulatory Reporting
- APIs for seamless data transfer to regulators
- Dashboards for managing reporting timelines
- Automation of form filings across regulators like RBI, SEBI etc.
Compliance Automation
- Cloud-based workflow for compliance tasks
- Regulatory change management tools
- Automated controls testing and compliance audits
Data Protection
- Blockchain solutions for secure document exchange
- Tokenization to mask sensitive customer data
- Scalable cloud infrastructure with high security controls
Challenges Faced by India’s Regtech Sector
Despite massive potential, India’s regtech ecosystem faces a few roadblocks:
- Integration with legacy systems: Banks struggle to integrate regtech with existing rigid IT systems not designed for agility and APIs.
- Security concerns: Financial firms are cautious about moving sensitive data to third-party regtech systems due to cyber risks.
- Talent shortage: There is a dearth of professionals with combined capabilities in regtech solutions and financial services domain expertise in India.
- Regulatory uncertainty: Frequent regulatory changes make companies apprehensive about making major regtech investments.
- Lack of awareness: Many Indian firms still do not fully comprehend the use-cases and benefits of regtech solutions. More advocacy is needed.
The Road Ahead
India’s regulatory landscape is only getting more complex with new emerging risks like crypto adoption and fintech disruption. Regtech is imperative for regulated entities to manage compliance effectively amidst the turbulence.
Industry experts predict India’s regtech sector will grow exponentially as stakeholders collaborate to nurture regtech innovation and tackle existing adoption barriers.
Financial regulators need to provide sandbox environments for testing regtech systems, and clarify security and data privacy expectations. Educational initiatives can help build regtech capacity within traditional compliance teams.
With the right support systems, India’s own regtech startups could develop cutting-edge solutions to catapult the country as a global regtech hub. Robust homegrown regtech capabilities will also boost India’s vision of becoming a $5 trillion digital economy.
Key Takeaways
- Regtech startups are addressing India’s massive need for efficient technology-driven compliance solutions.
- Leading banks and VCs are actively engaging with Indian regtech firms to help navigate the complex regulatory landscape.
- Regtech adoption is driven by digitization push, rising costs and remote working needs due to Covid-19.
- Solutions are focused on automation of KYC, transaction monitoring, regulatory reporting and other critical use cases.
- India must nurture regtech innovation by overcoming legacy integration challenges, security concerns, talent gaps and lack of awareness.
- With the right ecosystem support, India’s regtech startups could develop cutting-edge solutions and establish the country as a global regtech leader.