Regtech: Not Cool, Who Cares?

Every hype cycle contains its own backlash. Gartner poetically calls this the Trough of Disillusionment: the stage between excitement about a shiny new technology and calmer acceptance and adoption. The backlash stage seems to come round quicker than ever in these cynical, post-dotcom days—we are already seeing negative op-eds about blockchain, for example, not all that long after it first made headlines. Fintech has been in this trough for a while.

Case in point: recently I attended a talk provocatively named "Why Fintech Isn't Cool." The theme of the discussion was that "fintech" is just spin, a marketing term designed to conceal the fact that business-to-consumer financial services start-ups aren't really doing anything different. Deloitte seems to agree; in May, the consultancy released a report that said peer-to-peer lenders will not disrupt banks.

Perhaps fintech isn't cool. Perhaps the cool factor matters when you have to sell a concept to the general public. But in the capital markets, fintech's younger sibling—early-stage businesses aimed at helping financial institutions with one of their biggest difficulties, regulation—is emerging. The spaces these businesses play in—data management, data reconciliation, automating manual reporting—are not sexy, but investors see potential.

This is now enough of a phenomenon to warrant its own ugly portmanteau. "Regtech" isn't cool; but then, it isn't trying to be. You'll hear the language of "innovation" thrown around as much as in fintech, but really regtech doesn't position itself as disruptive. Rather, as a business-to-business sector, its potential lies in partnerships with financial institutions and even existing solutions providers. 

These businesses are increasingly supplying solutions focusing on specific bits of specific regulation. Perhaps this tactical approach is at odds with the holistic data hygiene regulators would like banks to practice, exemplified by BCBS 239, but that's a column for another day. I predict this will be the space to watch in months to come, even though it lacks the buzz that has characterized the fintech market.