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In recent years, the phrases ‘fintech’ and ‘regtech’ have been floating around the digital sphere but just what is fintech and what is the difference between it and regtech? This serves as your quick guide to both these terms, how these technologies are used and why they are becoming increasingly popular.

What is fintech?

Put simply, the term ‘fintech’ is an abbreviation of ‘financial technology.’ It’s used to describe any type of technology that allows the user to access financial services using digital means. There are many different areas that fintech touches on, including cryptocurrency, banking, and investment but many fintech applications are consumer focused. For example, PayPal is one of the first types of fintech- which enabled consumers to make secure payments online and send money without having to share bank details.

Some other examples of fintech include:

  • Klarna- an online payment method which allows consumers to pay for goods in installments
  • Venmo- an app which allows users to send and receive money from friends and family
  • Monzo- an online bank
  • Crowdfunding platforms- for example Kickstarter and Go fund me where individuals can connect directly with investors

Why is fintech important?

The emergence of fintech is important because it allows for innovation in the financial sphere, delivering a greater range of accessible solutions for consumers. It leverages the possibilities opened up by the digital age and ensures the evolution of financial services in adapting to increasingly digital needs.

Fintech products and solutions have also become increasingly important during the covid-19 pandemic and social distancing in enabling contactless payments, online transactions and money transfers. The sector being reported as worth £7 billion in the UK alone, is a clear measure of success in this area and opens up many possibilities for the future as technology continues to advance.

What is regtech?

This is another popular term that’s often linked to fintech, but what is regtech and how does it differ? Regtech refers to regulatory technology which is used to manage the compliance activities required by financial organisations. It is designed to both help firms to meet regulatory requirements and to ensure that all relevant organisations operating within the financial industry are properly regulated. The use of these regulatory compliance solutions is encouraged by the Financial Conduct Authority (FCA) who state: “our aim is to encourage the development of these technologies, as they could benefit consumers and the wider industry.”

Regtech solutions essentially break down the increasing complexity of regulatory activities and provide the tools needed to:

  • Create up to date reports
  • Access real time data
  • Manage risk
  • Keep data secure
  • Gain insight into business activities

The history of regtech

One of the drivers behind the development of regtech was the impact of the 2008 financial crisis on the industry. This not only resulted in an increase in the complexity of regulations, but the advance of technology and the use of data raised concerns about the risks that these activities opened up; for example, cybercrime, data privacy and security.

There was also risk involved in the emergence of fintech, which was largely driven by the technology sector. This raised the need for regulatory activities to also evolve to ensure that these services and applications were compliant with all regulations relating to the financial industry and also to ensure the safety and security of digital data.

Innovation in finance

The emergence of fintech and regtech have allowed the finance industry to evolve with the times and thrive in the digital age. While this creates a wealth of opportunity for new start ups and consumers, it also opens up new areas of risk such as those mentioned above. Understanding these risks and adopting the right solutions to mitigate them is going to be key for financial institutions to navigate digitalisation and keep up as technologies progress in the future.

Now that we’ve covered the answers to the following- what is fintech and what is regtech, if you’re already aware of smcr, read our SMCR e-book to help you prepare for the upcoming deadline, otherwise find out more about smcr and what’s required from financial organisations to comply.

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Written by

Donna Foulis

As Digital Content Executive with Ideagen, Donna creates content which delivers value to the reader and provides insights and solutions into the challenges they might be facing. With a strong background in content writing, Donna is passionate about creating quality pieces which resonate with our audience across the digital sphere.