Over the last decade, the RegTech industry has experienced a significant period of growth and expansion – with more businesses than ever turning to regulatory technology.
Alongside this considerable RegTech industry growth has been the inevitable expansion of market players – with new technologies providing new opportunities for nimble startups in the space.
With this all considered, it is likely the industry will eventually undergo a period of consolidation as certain market players suck up market share and become one-stop shops for financial institutions. Is such a consolidation inevitable?
“Consolidation is a natural process in any rapidly evolving and expanding industry,” said Flagright growth manager Joseph Ibitola. “In the case of RegTech, the primary drivers behind this trend are the increasing regulatory demands, the need for more sophisticated compliance solutions, and the desire to streamline operations to achieve greater cost efficiency.”
As the industry matures, Ibitola underlines, larger players may find it advantageous to acquire smaller, innovative firms to bolster their product offerings, strengthen their market position and expand into new verticals.
However, the Flagright growth manager stated that this consolidation shouldn’t be seen as necessarily a negative development. “When executed strategically, it can lead to enhanced competitiveness and innovation within the sector. Acquiring specialized expertise can enable larger firms to deliver more comprehensive and effective solutions, while the influx of resources can provide the necessary support for smaller companies to scale and grow.”
The degree of consolidation that could be seen in the RegTech sector, on the other hand, is not predetermined, stated Ibitola. “External factors, such as regulatory changes, economic conditions, and technological advancements, will play a significant role in shaping the industry landscape. Moreover, the presence of a vibrant startup ecosystem, supported by venture capital funding and strategic partnerships, can help maintain a healthy level of competition and diversity within the sector.”
The RegTech sector is still evolving, therefore providing quite a challenge for industry participants to fully predict when and if the industry is heading to greater consolidation.
Ibitola explained, “While some degree of consolidation is indeed inevitable, its ultimate impact will depend on various factors, including the industry’s ability to adapt, innovate, and foster a competitive environment. Stakeholders must remain vigilant and proactive in ensuring that the benefits of consolidation outweigh the potential risks and that the sector continues to thrive and evolve in response to the ever-changing regulatory landscape.”
Danny Gal – CRO/COO of Clausematch – is broadly in line with this sentiment, stating that consolidation is ‘inevitable’ in the RegTech industry – and that this is a good thing for RegTech companies.
He said, “There are currently thousands of RegTechs offering a variety of solutions, many of them doing the same or similar things. This is confusing for potential customers and so many choices create a daunting environment.”
If businesses are looking for ways to stave off consolidation or stand out from competitors, Gal suggests they should focus on their customers’ pains and working toward how they can solve those issues through partnerships or consolidation. “I think we will likely see this approach in the coming months and years ahead,” he said.
One-stop shop
While it may be common for some firms to bemoan industry consolidation, for those who purchase RegTech solutions the potential for consolidation provides more of a ‘one-stop-shop’ model for businesses – a development which could provide more stability and long-term commitment for customers.
Remonda Kirketerp-Møller – CEO of Muinmos – explained, “Apart from the apparent advantage of size and the fact that if an ‘arms race’ begins than it is very hard to stop it, I think this happens mainly because it’s what clients want.
“Clients don’t want, for example, to have to contract 5-6 data providers, a PEPs & Sanctions screener and an IDV provider; they want to get it all from one provider.”
According to Kirketerp-Møller, this is one reason why Muinmos has seen particular growth over the last year – with the Muinmos CEO stating that clients are increasingly coming to the firm because they cover the entire onboarding process.
“The demand from clients for an ‘ecosystem’ of digital services, clustered into one is a trend that looks set to continue. This is the underlying reason, I believe, to why more and more consolidation is happening in the sector,” she concluded.
Consolidation benefits
Vall Herard – CEO and co-founder of RegTech firm Saifr – emphasised that he believed the pace of consolidation will continue because many RegTechs evolved as point solutions for a specific regulation.
He commented, “I believe that the pace of consolidation will continue because many RegTech companies evolved as point solutions for a specific regulation. Consequently, end users must manage a number of vendors to piecemeal a complete compliance solution.
“With consolidation, end users can achieve better scale and a more complete compliance suite. A key driver for additional consolidation will be the pace of AI innovation. In particular, the impact of large language models (LLMs) on key compliance areas such as legal and regulatory analysis, communications/ advertising monitoring & review, and content production & delivery will enable consolidation into a single platform. The net result will be lower total cost of ownership for end users which will translate into lower fees for retail and institutional investors.”
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