There are many, many strands of fintech emerging this decade, though few will impact on actual costs like regtech will, according to Corlytics.
“If you look at the top 20 banks, they paid out $9.6bn dollars in fines last year,” said John Byrne, CEO of regulatory risk intelligence company Corlytics.
The figure, he said, is as good a reason as any for industry to back companies in the regtech space. Regulatory risk is simply too costly a process to ignore.
Winners and losers
In January this year, $30bn was spent in fines in the US and, as Byrne goes on to say, “you can lose a lot of money as a bank with bad credit, but if you get into trouble with a regulator …”.
Corlytics recently completed its largest funding push to date, with Kernel Capital upping its investment after leading a €3m round.
Founded in 2013, Corlytics operates a head office from NovaUCD with other offices in London, New York and Boston. In 2016, it achieved a €1m investment round, which is when Kernel got involved.
That funding is being put towards two programmes; firstly, recruitment is underway for a global management team and secondly, the company’s product will now get to market.
Corlytics is a risk-focused financial intelligence technology company, providing banks and financial services firms with software that helps them to identify avoidable losses and fines.
“Five banks in the EU have yellow cards with the US Department of Justice. Any more incidents on the pitch and they’re out,” warned Byrne.
“There is a very big market for us.”
With risk such as this, Corlytics’ existence makes more and more sense. Byrne, who started in this field decades ago, finds today’s environment tougher to achieve in, rather than, say, two decades ago.
He pins much of that down to competition, with the mid-1990s seeing competition largely being bank to bank. Today, everybody is involved.
Buy, buy, buy
However, what’s helping Corlytics to make a name for itself is a new culture of buying in solutions, something alien to the financial services industry before the turn of the millennium.
“If you look 20 years ago, most mid-sized banks in Europe developed 85pc of their applications internally,” he said.
“There wasn’t a culture of buying in solutions. If you look today, there is much more a culture of buying in solutions from partners. This, for us, is hugely beneficial.”
Byrne cites the motor industry in the 1970s, compared to now, as a perfect example of where this new culture could take financial services.
Automotive manufacturers back then made much of their own parts, with glass, switches and even tyres developed in-house in some cases.
To try that now would be industrial insanity – as little as 20pc of a car is now manufactured in-house.
“The whole supplier ecosystem is a very advanced marketplace, where every big player buys in technology and treats those partner companies as vital parts of their ecosystem,” said Byrne.
He added that this is where banking is soon heading, especially with as much as 15pc of total banking costs going into regulation.
Good after bad
Banks are now pouring money into the problem but, as yet, few solutions are emerging.
“They spend a lot of money on technology, but they still get terrible outcomes,” said Byrne. “If you look at the top 10 banks, for every $10 they spend on regulatory tech with existing older players, they’re paying $3 in fines.
“Any time you have an industry where the older players aren’t investing well in new technology, and the business problems that the banks [have] continue, there will be opportunities.”
Those opportunities will continue into the future, with the emergence of blockchain destined to revolutionise the financial services sector entirely.
When it actually will make tangible impacts, though, is debatable.
For Byrne, it will be five years, maybe six, but the clues to the explosion of blockchain will be obvious.
“For blockchain to take hold, the main clearers of transactions all have to support it,” he said.
“If you look at the big payment and security clearing houses, and they embrace it, then it will really take off.”
Updated, 7.42am, 28 April 2017: This article was amended to correct a wrong financial figure.