KYC and the imperative for digital transformation
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The importance of RegTech vendor collaboration

By Nick Ford | August 25th 2022
The Importance of RegTech Vendor Collaboration | Encompass blog

No single fintech or regtech vendor can provide an answer to every challenge facing banks today. With rapid regulatory changes and increasing customer expectations, it’s more important than ever for vendors to work together to deliver the holistic digital ecosystem banks need.

The problem of too much choice

When it comes to creating efficiencies, the financial services industry has always had one eye on the future. The roots of financial technology (fintech) can be traced all the way back to the 19th century, when banks began moving money using telegrams and morse code – in 1860, Giovanni Caselli’s pantelegraph was used as an early fax machine to verify signatures.

Citigroup were among the first to seize on the modern potential of fintech, establishing the Financial Services Technology Consortium in the early 1990s with the primary objective of facilitating cooperation between fintech developers. Collaboration and a common approach to problem-solving has always been central to fintech’s, and later regtech’s, evolution.

However, the fintech boom of the 2000s saw a large number of vendors enter the market, with as many as 30 vendors all promising a different fix to the same problems. At the same time, regulators encouraged the use of technology, and banks were focused on becoming more efficient and cost aware. Vendors were therefore invited to pitch across many product use cases, muddying the waters as to which vendors were competitors or potential collaborators.

Complexity and confusion over which vendors were credible and the specificities of each product often culminated in a paradox of choice – further complicated by the question of whether to buy or build technological solutions in-house. Banks were overwhelmed by options, resulting in decision-making paralysis.

With maturity comes wisdom

As the market matured, vendors were able to provide concrete evidence as to their credibility and the value of their solutions. Still seeking cost efficiencies and navigating swathes of new regulations post-2008, banks learned from one another, spurred on by the need to ensure no opportunity for competitive advantage was missed.

Increasing clarity around where each vendor provided the most value revealed the gaps where collaboration could have a significant impact: by now, many fintechs and regtechs were well-established, so it became easier for them to increase transparency on what their products did not do. This resulted in a focus on what they did do and the problem they solved, opening the door for partnerships with other vendors.

The power of relationship building

When technology, data, and consulting companies collaborate, banks accrue a number of benefits as they transform and automate KYC due diligence. Lifting analysts’ productivity creates efficiency savings, and accelerating the process improves the level of service offered to customers. Automating and streamlining workflows improves work satisfaction for analysts while also instituting better control of risk, easing the work of quality control and oversight while producing deeper customer insights.

However, no one vendor can solve every problem – any claims of providing a full end-to-end solution to, for example, onboarding or customer maintenance, quickly fall apart under scrutiny.

Thankfully, today both banks and vendors have accepted the need for multiple products with interlinking specialisms: it’s not unusual to have at least three partners solving a single pain point. Having standard workflow integrations therefore makes real sense, with clear advantages on both sides for making technology as collaborative as possible.

Vendors who understand the importance of collaborating with vendors of complementary technologies reflect this in their business model and in their technology. Building strong partnerships connects their business model to those of other vendors, combining the values of both to the advantage of their banking customers.

Building on the benefits of having multiple vendors in collaboration, we are now seeing the realization that another vendor may be required to pull the whole digital ecosystem together. Having a partner who sits within the consultancy space can provide an effective ‘wraparound’ element, enabling banks to understand the big-picture view and the true long-terms benefits of a collaborative approach.

With our focus on our banking customers’ success, Encompass partners with a range of technology, data, and consulting companies. Together we provide joined-up technology that enables banks to automate their KYC due diligence process and reduce costs while improving customer experiences.

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