Last Tuesday, May 26th the Nordic RegTech Association hosted its first online Meetup in partnership with Antler. You can watch the complete recording of the Meetup here. The event focused on discussing the impact of COVID-19 on the emerging RegTech sector with several experienced professionals in the field. We heard from Johan Wallquist, who works with digital transformation at Centigo, and Janne Järvenoja from NordCheck, a RegTech company reducing compliance risks and automating compliance processes. We also heard from Eric Johansson, editor at RegTech Analyst, who summarized the recent insights from the global RegTech industry, and Julia Nilsson from Antler, who contributed to the discussion with a venture capitalist perspective. In this blog entry, we summarize the most important global and local trends in the developing RegTech space that were brought up during the event.
Accelerated digitalization. Johan Wallquist kickstarted the discussion by sharing that the digitalization pace has increased dramatically, moving the industries to the point that would be expected in 5 years in astonishing 8 weeks. The change has impacted all the industries in global economies, along with the FinTech and RegTech sectors. With respect to RegTech solutions in particular, Janne Järvenoja pointed out that the accelerated digitalization is likely to prompt the buyers to look into digital risk and compliance solutions as well, both in an effort to move from reactive to more integrated approach to these processes and as a consequence of social distancing.
Remote working. As a result of the government-imposed restrictions mitigating the impact of the pandemic, millions around the world were forced to work from home. After a few weeks, several tech giants announced that their employees might not be ever returning to the offices – the productivity did not drop and the businesses saw clear value in cutting the costs of maintaining the office spaces. Closely tied to the accelerated digitalization, remote working led to dramatic shifts in how the compliance industry works. The founder of NordCheck highlighted that once the traditional siloed approach to risk management became more difficult to manage due to a high proportion of face-to-face and person-dependent process, the need for a more efficient and tech-driven information management increased. Eric Johansson from RegTech Analyst added that the demand for more efficient cyber security solutions might rise as the employees engage in work-related activities from home, moving a significant share of the confidential physical interactions into the cyberspace.
Changes in the investments scene. Alongside the changes in the regulations and the effects of working remotely, Eric Johansson devoted a part of his presentation to the discussion to the changes in the investment scene. According to the research by RegTech Analyst, the global investments into the RegTech space have soared from 777 mln $ in 2015 to whopping 7 bln $ in 2019. The first three months of 2020 have already brought the sector 3,2 bln $, which could suggest that 2020 will be another record year, virtually untouched by the effects of the pandemic. It is notable though that since most of these investments cover the North American markets and Europe, it is likely that the pandemic started to impact the decision-making of investors only in March and most of the deals were already negotiated months before. Therefore, the investors may choose to avoid investing in early-stage start-ups until the situation on the market normalizes. However, Johansson pointed out that series B RegTechs may continue to enjoy considerable investments as they may be perceived as less risky by the investor community. Although the prognoses of the investors’ activity were not particularly optimistic, Julia Nilsson from Antler emphasized that they carry on scouting for, helping and funding early-stage start-ups. The venture capitalist firm uniquely helps the founders to find business partners, to determine the product-market fit and provides investment support to let the business grow. You can read more about Antler’s 6 month program here.
Continuing change in regulatory landscape. The European regulators have met the news of the outbreak by imposing emergency measures aimed at protecting the business continuity and the markets. Eric Johansson suggested that this continuing evolution of the regulatory landscape is likely to foster the demand for RegTech solutions, while Janne Järvenoja shared his view that the pandemic with all its regulatory and operational changes might be a turning point for many businesses in re-assessing their attitude to their compliance and sustainability efforts, and therefore might prompt many companies to step up in the way they respond to regulatory challenges.
To conclude with, the digital-native operational model of most RegTechs places them in an advantageous position, which allows these companies to continue business as usual in an era of social distancing brought by the pandemic. Secondly, working remotely might be an opportunity to RegTechs ensuring safety and security of information workflows in organizations. Third, since it is likely that the investor space might be slightly more reluctant to support early stage businesses this year, it may motivate the RegTechs to concentrate their efforts in building a better product and look for business models supporting more rapid organic growth. Finally, as the regulatory landscape continues to expand, imposing more rules to follow and report on, the demand for cost-efficient, tech-driven, quality solutions helping the businesses to comply is likely to continue its growth.