Australia might have the third largest concentration of regtech companies after the U.S. and the U.K., according to the Boston Consulting Group (BCG), but there is one significant barrier to adoption: the procurement practices of large organizations.
BCG told a private Sydney briefing earlier this year that it counted 30 regtech companies operating in Australia, which it sees as a healthy number. However, the local industry fears that much of this good initial work will be squandered because large organizations which need the solutions don't know how to procure them.
Failure to Communicate
While there is pressure from regulators following the recent Royal Commission into Misconduct in Financial Services for regtech to be adopted swiftly to improve compliance and trust, there is a danger that procurement bottlenecks will impede progress.
This challenge was discussed at a recent regtech roundtable held by the Financial Services Council in Sydney.
Deborah Young, the chief executive of the RegTech Association, told attendees that there was frustration with this procurement process and was the motivation to form the group around two years ago. Since then, it has grown to a membership of around 100 companies and organizations.
“The small and new tech companies were frustrated at not being able to access the larger companies to sell them their solutions,” Young said. “They have the solutions to big bank problems but are unable to find the right people [to talk to in large organizations] at the right time.”
“Clearly there is a lot of fatigue on both sides,” she added.
Young said that with the sales cycle for large organizations around two years, this needed to be reduced so that solutions could be implemented rapidly while allowing young companies to achieve revenue streams before they ran out of cash and impetus.
“So, if I am a bank, how do I do my procurement differently for a startup, which is not going to be able to afford that two-year time frame?” said Young. “This is where the rubber hits the road in terms of adoption.”
The Wheel of Dilemma
Lisa Schutz, founder and chief executive of new regtech startup Verifier, said that collaboration between all players in the sector was crucial for adoption, and she had seen positive signs when her company hosted an Anti Money Laundering “boot camp” in 2018.
“The banks said ‘you regtechs get yourselves together and into flotillas of end-to-end usefulness because it's impossible for us to buy ten of you,'" said Shutz.
“And regtech’s turned around and said to the banks: ‘Guys it would be really helpful if you knew how to procure technology in your compliance teams because we don't really want to coach you and you leave it to the last minute.'"
Schutz said that she had observed the beginning of collaboration at the event, where regulated entities which were natural competitors were sharing information on fast-tracking procurement, with a growing understanding that a new approach was needed.
“We have this creative explosion in terms of the variety, what we can call the API economy,” she said.
"Each of these firms is a specialty firm which does something really well and best in class. So, instead of the banks buying the big automation stack from a big vendor, they have the opportunity to curate a lot of best in class ‘mini bits’ if you like and put them all together. But that means there is a challenge on both sides.”
The RegTech Association’s Young used the image of a wheel to illustrate the dilemma.
In this process, large technology companies – and she named Microsoft as an example – were already in the center of the wheel alongside the major banks, and they could play a role in facilitating collaboration and ultimately adoption.
“They already have the banks as clients, but Microsoft can see whether they can help the people on the outside of the wheel to access the banks in a meaningful way,” said Young.
“So, if a regtech firm can go into the bank and tick four of the procurement boxes because they are already on Microsoft technology then it helps to [drive] trust in the organization.”