How to build a successful RegTech and financial institution relationship

Rebecca Angus, NorthRow's Marketing Manager shares key takeaways from the RegTech Women event.

Posted on February 26, 2020
Written by Rebecca Angus

Another well-attended event organised by RegTechWomen, with a focus on how RegTech firms can build successful relationships with financial institutions. The professional women’s network promotes the vital role women play in driving success within the industry together with providing a great source of insight in the RegTech space.

This latest event brought together a team of experts to debate what financial institutions should look for and expect from RegTech? And how RegTech firms can better prepare themselves to work with financial institutions.

The panel included representatives from NatWest Markets, Nomura and Deloitte Ventures, for the Banks’ perspective, with Addleshaw Goddard and Shield for the RegTech perspective. It was refreshing to see the promotion of gender diversity and the celebration of emerging female talent within the RegTech industry.  There were some healthy debates and vibrant and frank discussions on the real challenges that large financial services firms, alongside smaller RegTech providers, face when working together. 

Below is the key takeaways from the event.

The challenge for financial firms

As a financial services provider, choosing who to partner with is a complicated task. There is a genuine appetite within bank digital transformation projects to work with new, smaller RegTech firms, despite the fact that choosing to work with a start-up can pose certain risks. 

In a risk-averse industry, introducing technological change can fall foul of procurement cycle bureaucracy, which can prove time-consuming and inefficient for both parties. 

What can RegTech firms do to help improve partnership relationships?

Do your research

One of the biggest frustrations for some large banks is when RegTech firms do not undertake the required due diligence when applying to become a banking vendor. With many security checks needing to be completed before a partnership can begin, it is important that RegTech firms understand the third-party risk from the banks’ perspective.

Distil your value proposition

With 600+ RegTech firms to choose from, covering a wide range of use cases, finding the right firm to partner with can be a minefield for financial institutions. As a result, it is essential that RegTech firms demonstrate the value proposition of their unique solution, simply, concisely and compellingly. 

For example, RegTech firms need to be clear what the IP for their solution is and what it actually does. Out of the hundreds of smart new algorithms and techniques available, what’s unique about yours and why should the Financial Institution care?

Alternatively, if you are unable to create an IP for your solution you may need to demonstrate your value through the robust customer relationships that you have built.

Clear messaging

Clearly, you can’t assume that a banking buyer will connect their problem with your solution automatically, which is why it is important that you demonstrate how your solution solves a defined banking problem. 

Unfortunately, some RegTech firms can be guilty of using too many buzzwords in their pitches, e.g. AI and Machine learning, despite the fact that the buzzwords used do not match the actual technology; giving a disconnect between what is said and reality. This can quickly erode trust and should be avoided, with buzzwords only being used if they are truly part of your offering.

Ensure credibility

Financial institutions are more open to talking to small technology providers today, than ever before, but there is still a significant credibility barrier to overcome. For instance, it is important to Financial firms that a RegTech vendor has been around for at least 2 years, having gained a solid reputation and strong client relationships, before a partnership conversation can even begin.

Clear product roadmap

It is important that RegTechs have an integral product roadmap clearly demonstrating their plans for the future. This not only serves to demonstrate strategic thinking but also sets clear objectives and expectations.

Scalability 

It is crucial that RegTech vendors can demonstrate that their technology is scalable and can be used across international markets and sectors. 

The challenge for RegTech firms

From the perspective of a RegTech, the banks and financial institutions can do better to reduce procurement cycles:

Reduce unnecessary bureaucracy

Inefficiencies and duplication across the application process to become a banking vendor, can be very frustrating for RegTechs. The process tends to be manual on the bank’s side, in many cases, and the RegTech provider can often get inundated with requests.

Understanding the problem

From a RegTech’s perspective, fully understanding the whole challenge a bank faces can be an issue. Banks can be quite secretive about the whole end-to-end client onboarding process and the flow of data, which makes it very difficult for the vendor to truly match their solution appropriately to the specific issues. Understanding the bank’s full requirements and deployment times means the RegTech provider can adapt the product to better fit their needs.

Finding the right champion 

Finding individuals who advocate digital transformation projects, at the right seniority level within the Financial Institution, is a challenge. Having better access to these individuals, when identified, is crucial.

Be honest

Banks and large financial firms need to be honest with RegTech providers regarding their true intentions. It is not unusual for a vendor to have to reveal everything to the bank during the pitching process whilst, in return, the bank can keep their true intentions secret from all other parties. 

One reason they may be secretive is that they feel, through the process, that they can then build their own solution in-house, instead of relying on a third-party partner. This is very unhelpful as it masks important issues and makes it difficult for vendors to quote properly. Consequently it has the effect of increasing costs, is inefficient and extends the time it takes to fix the initial problem. If a bank makes clear their goals, intentions and expectations, this makes it easier for a RegTech provider to help.

In Summary: Fundamentals of a good partnership

RegTech providers are redefining the future for financial services and are transforming the way risk management and regulatory compliance requirements are delivered more efficiently. 

For the partnership to work more effectively, there needs to be more:

  • Trust between both parties and an openness to share goals
  • Collaboration between multiple RegTech firms to solve a banking need
  • Understanding of the problem, and the banking sector in general, better
  • Providing clear unique value

Want to learn more?

To find out more about RegTechWomen visit http://www.regtechwomen.org/ 

If you would like to learn more on RegTech and how NorthRow digitally transform their client onboarding, compliance and ongoing monitoring, get in touch today.