Finally, Regtech Is Part of the Boardroom Conversation
- By Lachlan Colquhoun
- January 09, 2023
It is often hard to get too excited about the regtech sector.
When businesses think of technology, the immediate thought is that investments should drive growth and transformation.
The C-suite understands that risk and compliance are essential. Still, it often takes a disaster or a clampdown by governments and regulators before regtech solutions are seriously considered for implementation.
Nevertheless, there has been something of a journey for the regtech sector over 2022, which will continue the momentum into 2023. Many organizations have got the message that compliance technology is not just nice to have, but it’s a must-have.
As they watch their peers hit by crises and the regulatory fines mount up, there is a growing sense that companies will no longer be able to get by with their outdated compliance processes and procedures.
Regtech is increasingly finding its way into board conversations, and astute technologists also understand that there is a world beyond compliance. It is where solutions not only keep the organization’s nose clean and the regulators happy but can deliver benefits to processes and the bottom line. Often, these benefits are around implementing automation.
Consolidated effort
Perhaps because it is such a ‘rules-based’ economy, Australia’s startup IT sector embraced Regtech and consolidated its efforts around an active Regtech Association (RTA) established in 2017.
In collaboration with big four accounting firm EY, it has recently released its 2022 industry report, which follows up an earlier report from 2019 and gives valuable insight into how the industry has progressed in Australia. It is based on survey responses from around 60 regtech companies and a small number of regulators.
The top functional roles covered by the regtechs are monitoring operations, data compliance management and risk analysis.
“Regtech is increasingly finding its way into board conversations, and astute technologists also understand that there is a world beyond compliance”
The survey shows us that the sector is growing, although perhaps inexorably. Regtechs are seeing increased revenues, and there is a reduction in the time it takes for customers to commit to signed trial deals.
Where companies were originally funding themselves through ‘bootstrapping’ founders and their families and friends, the industry has reached a level of maturity where it is increasingly attractive to sophisticated venture capital. And in good news for industry diversity, there has been an increase in female founders.
Drilling down
The survey found that 43% of the regtechs reported an increase in revenue of more than 30% in 2022. 66% reported an increase in customer appetite or saw unexpected new opportunities.
The pandemic impacted interest in the Government sector, with 43% of the regtechs reporting that public sector organizations had reached out with pandemic-related business opportunities, up from 31% the previous year. In response to this, 57% increased staffing levels despite the pandemic.
In 2021, it took almost seven months to move from an initial conversation with a customer to a signed POC or trial. The reported average now is 5.3 months.
The average time from an initial conversation to full production deployment is now 9.3 months, down from 10 months in 2021. In a sign that some regtechs are building scale, over 40% have added over 10 production deployments since 2021.
The investment sector has also been sensitive to this momentum, and 39% of regtechs saw more interest from investors.
All about procurement
As it was back in 2019, the most significant barrier to growth is the procurement process on the customer side.
Many large organizations have long and unwieldy procurement processes for new vendors, and there are often issues in achieving agreement on contract terms.
This is still leaving young Regtech companies often hanging in the air, waiting for procurement from large clients to come through. Many of these regtechs continue to burn cash as they wait on procurement processes which can take 12 months or more.
Young regtechs often address particular problems rather than offer end-to-end solutions, leading to confusion and some reticence on the client side.
For many organizations, assembling an end-to-end solution from several regtech vendors is too complicated to consider.
They need regtechs to collaborate and potentially merge their capabilities to offer a complete solution. This is where savvy investors can come in and drive transformative rollups that have more scale and are more easily understood by clients.
All of this is part of a maturity journey. The RTA’s 2022 shows the journey is ongoing, but the rubber is not hitting the road quite yet. Perhaps 2023 will be the year.
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].
Image credit: iStockphoto/Caiaimage/Martin Barraud