Over the last decades, Latin America has become an attractive destination for entrepreneurs looking to expand their businesses to a vibrant and constantly growing destination. As financial regulations increase and multiple advances in technology take place, the number of emerging fintech companies has been rising across the region and the regtech segment has been gaining ground in the local markets.
Although regtech is relatively new to the Latin American business environment, there is already a growing need to regulate a digital market that is rapidly developing. The region has one of the world’s highest rates of unbanked population and a young fintech ecosystem, so is considered to be the ideal market for regtech solutions that target both the conventional banking industry and fintech startups.
This situation highlights the need for integrated solutions to reduce risks, manage and monitor data and improve regulatory compliance. Consequently, regtech represents a valuable opportunity for local and foreign entrepreneurs seeking to develop their businesses in compliance with financial industry legislation.
What is Regtech?
Regtech, also known as ‘regulatory technology,’ is used to ensure compliance with financial regulations through the automation of processes that were previously performed manually. This improves the quality of information that is used to make important decisions and generate risk management reports.
Regtech relies on the use of big data, machine-learning technology and cloud computing – a type of computing that uses shared computing resources rather than having local servers or personal devices – to help businesses comply with regulations and reduce risks.
As the Latin American banking industry goes digital and fintech startups consolidate, the regtech sector aims to mitigate the lack of financial compliance, while protecting users in a promising but poorly regulated environment.
But how does regtech help financial services? The main functions of regtech include regulatory monitoring, reporting, compliance and data and tax management solutions. The benefits that regtech offers are growing every day and the industry is constantly changing and finding new ways to improve regulatory compliance among the Latin American financial sector.
The following are some benefits that regtech offers to financial services:
- Data management solutions
- Tax management solutions
- Risk management solutions
- Records management solutions
- Trade monitoring solutions
- Reporting solutions
- Portfolio risk management solutions
- Quantitative analysis solutions.
Overview Regtech Latin America
Latin America has a rapidly growing fintech scene. According to the Inter-American Development Bank (IADB), there are over 700 active fintech start-ups in countries such as Brazil, Mexico, Colombia, Argentina and Chile.
Some of the key characteristics of regtech are its ability to rapidly extract, transfer and upload data. The technology also offers integrated solutions and analytical tools to intelligently mine “big data” data sets.
According to Fintech Global, at the beginning of last year, the regtech industry had registered an investment of about 3.7 billion, revealing the increase in the use of these services around the world. This is significant growth and represents a profitable business opportunity for investors in all continents, and especially in Latin America.
Besides, as claimed by the KPMG report, by 2022, total corporate spending in the regtech industry is expected to reach US$76 billion. This is seven times higher than the figure in 2017.
While fintech companies offer plenty of benefits to their users around the world, they are not-exempt from dealing with potential risks that can seriously affect not only their business, but their credibility among customers.
In Colombia, the fintech sector has grown by 26%, with 200 start-ups currently active in 2020. The Financial Superintendence – the national entity in charge of supervising financial systems in the country – announced the creation of multiple mechanisms that will help businesses to optimize the transmission of information to ensure the security of users’ data.
Although most of the region is experiencing lockdowns due to the Covid-19 pandemic, this year the Congress of Chile will also issue legislation regarding fintech businesses. According to the government, the new regulation will seek to boost financial inclusion and business innovation.
Innovation in the Regtech sector in Latin America
Regtech initiatives in some of Latin America’s largest markets include:
This Chilean startup manages extensive amounts of data from multiple sources, helping its users to recognize and mitigate risks or problems that may occur within a company’s internal system.
- Contraloría privada
Designed by the Chilean government, this mobile application supports digital compliance processes. It allows users to digitize, track deadlines and make online claims before the Comptroller General of Chile (CGR). It efficiently reduces waiting times, while improving effectiveness and legal certainty in public-private actions.
Addi allows its users to obtain low interest credits through a mobile application in a very short time and without additional costs or paperwork.
Shareppy allows its users to generate microcredits and manage the recovery of their finances, through an intelligent process that was designed to improve efficiency and response times for clients.
- Eurobits technologies Mexico
Eurobits technologies offers monitoring services to provide companies with up-to-date and specific information on digital banking systems and their behavior, compared to the competition.
Seif offers a decentralized blockchain experience focused on helping customers and suppliers access a secure system in which information can be safely shared.
According to recent forecasts, the overall fintech market in Latin America could exceed $150 billion by 2021. This highlights the investment opportunities in a young, unexplored and unsaturated market, where 70% of the population is outside of the traditional banking system.
Regtech exploration could not only increase efficiency, as well as reduce risks and costs, it could also improve the collection of information and patterns that could be used to alert authorities to unusual or suspicious activity.