Banks versus fintechs #2: Tension builds with regtech innovation

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By:
Kimberley Long
Published on:

Banks face a payments dilemma of either collaborating with fintechs or developing systems in-house, and the same issue is now arising in the approach to regulation and the best way to digitize compliance.

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On the banks’ side, there have been pushes forward. For example, JPMorgan has developed its Data Once platform to streamline know-your-customer compliance

Launched in March, the unique selling point of the product is self-explanatory: customers just need to input their data once, and it can be transferred across products and geographies.  

Data Once is accessed from a dashboard, displaying which aspects are still needed in the compliance process and alerting users to any queries or rejections. The bank wanted to put as much control as possible into the hands of the end-user.

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Kevin Heins,
JPMorgan

Kevin Heins, managing director and global head of implementations at JPMorgan, says: “The dashboard creates a visual, trackable experience for our clients. 

"Clients can now take control of the entire on-boarding process – they receive progress updates throughout and completed requests are removed from the grid. Clients can also process in stages, saving some information and coming back to complete it later.”

For its global clients, the process of compliance is more arduous than it needs to be due to processes being developed in-country, rather than across the bank as a whole. 

Heins says: “The client experience as it exists today is inconsistent and varies greatly country by country. There are various different regulations and product offerings to consider globally – the platform will only offer what is available locally. 

"Data Once is tailored towards local requirements. It also will not request any information that is not needed.”

Glen Solimine, executive director and Data Once product manager at JPMorgan, says: “The client no longer needs to guess what still needs to be done to fulfil requirements. Every step and detail is listed out for them.

"Clients will be notified when the status of a request changes or when new requirements are identified.”

Important leap

JPMorgan’s platform makes the important leap of embracing the digital possibilities available to them, while complying with internal regulatory and privacy processes. 

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Glen Solimine,
JPMorgan

Solimine says: “The system capitalizes on smartforms. This makes it easy for a client to extract a form from the system, send it around to everyone who needs to fill in various sections and then reattach the completed form to the request.” 

There is scope to develop Data Once further as technology matures. 

Heins says: “Complete digitization is the goal. The straight-through process from our clients to back-end systems makes the process much more efficient and timely. 

"The reusability of prior requests and the ability to accept electronic signatures significantly reduce risks while enhancing efficiency on the client side.”

The evolution of Data Once also takes into account the experiences of the clients. 

Says Heins: “In each update or release, we have taken into account the client feedback to get to the heart of the issues they are having and what problems most need addressing.”

While the banks are tackling the problems themselves, the regtechs are also hard at work, joining up with distributors who can get them in front of prospective clients. 

B-Hive is an aggregator platform that draws together fintech start-ups and scale-ups providing a variety of services. Earlier in May in London, it hosted a regtech-focused event to showcase 14 companies and their specific offerings. Covering data visualization to e-signatures, the companies were given the platform to pitch their services to bank compliance officers.

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Niek De Taeye,
B-Hive

Niek De Taeye, chief operating officer of B-Hive, says while the big banks can play in the space, the smaller ones do not have the same luxury of money or resources.

“I can see a two-speed approach emerging as the banks look to address a specific need at a moment in time," he says. "Big banks are investing in their own software, but smaller banks don’t have the capabilities to do it themselves. 

"Tier-two banks are more likely to use third-party vendors to assist them in their regulatory obligations.”

Choosing this way of operating has its advantages in a changing regulatory landscape. The way in which the smaller companies can develop their offerings have the distinct advantage over the larger companies as they can adapt their offering more quickly, and are developed to be disposable or modifiable as they become obsolete. 

De Taeye says: “Plug-and-play functions can be removed as easily as they are plugged in. Also, they can expand the applications in the future should regulation change.”

While banks can be forward-thinking, they really need to push further in their acceptance of innovative technology. For banks to get a handle on the information they hold, De Taeye believes they have to expand their digital presence into artificial intelligence (AI).

“Data is held in huge systems, with some banks keeping details of every transaction going back years," he says. "Searching through the information could be hugely labour-intensive, but it does not have to be manual. Data can be dropped into the data lake and the AI software can search through it to find the connections.”

Unaware

Banks are unaware of the level of information they already have that can be used to improve their operations, says De Taeye. He believes this puts them at a disadvantage, adding: “Only between 1% and 10% of the data processed by FIs is used. If there is investment in AI developments, then the rest of this rich data stream can be accessed.”

In De Taeye’s view, it is best to have the banks focus on what they do best.

“Having third parties works when services are used for non-core operations," he says. "Legacy systems need to be used for payments and core services that cannot fail, and therefore are not changed very often.”

He does, however, believe there are gains to be made from having the banks and fintechs work on a sandbox-type operation where they can leverage off each other.

“Companies need somewhere to test out their systems using large sets of data, without fear of repercussions," he says. "The smaller regtechs do not have access to this scale of information, so cannot fully test their platforms. They would benefit from the regulators creating a physical sandbox, containing representative data.”