International Remittances: the RegTech Revolution.
As FinTech slashes the cost of money transfer in Africa, migrant workers increasingly may choose from a host of new digital channels to send money back home.
By Anne McIvor
As FinTech slashes the cost of money transfer in Africa, migrant workers increasingly may choose from a host of new digital channels to send money back home. But, as customers switch from traditional cash remittances to online and mobile alternatives, the money transfer industry is faced with a growing regulatory burden. ‘RegTech’ or Regulatory Technology – a sub-set of FinTech – is solving the challenge of meeting regulatory requirements.
RegTech provides “nimble, configurable, easy to integrate, reliable, secure and cost-effective” solutions for the delivery of regulatory requirements (Deloitte). First generation RegTech solutions focus on efficiency: the digitalization of manual reporting and compliance processes required to meet regulations such as KYC (know your customer). These offer valuable cost savings. But, RegTech innovation is rapidly moving beyond efficiency and increasingly represents a radically new approach to compliance.
The use of social media and biometrics is already transforming customer due diligence and anti-fraud measures. And next generation solutions promise to create a virtually real-time regulatory regime that identifies and addresses risks.
International remittances require intensive checks to comply with the Financial Action Task Force’s AML (anti money laundering) guidelines, which also aim to prevent the financing of terrorism. Cross border AML requires cross checking of the parties at each end of a remittance against multiple lists of blacklisted names generated by UN, the US Treasury Department, the EU and at a national level. With checks required on even low value payments, the administrative burden is enormous.
RegTech solutions remove a mountain of paperwork by streamlining AML checks. Innovative RegTech products are also emerging which can also identify and address risk.
According to Hazem Mulhim, CEO of EastNets, “regulatory developments are driving technological change” as the remit of the compliance function broadens to cover cyber risks. EastNets provides RegTech solutions including anti-money laundering, watch list screening and behaviour and transaction Monitoring Software. Its ‘Smart Hub’ connects parties on each side of a transaction: an intelligent ‘hub and spoke’ system checks that a payment is compliant at both the beginning and end of the transaction, even before it has been transmitted.
SingTel, in Singapore – a major economic hub for ‘intelligent migrants’ using mobile and digital wallets – was one of the first Smart Hub customers and EastNet’s Mulhim sees enormous potential for the product internationally. As he points out:
“Africa is emerging as an economic hub. It is no longer just a destination for remittances but represents a hub for two way flows of funds, with rising levels of outflows – for example flows back to China from migrant Chinese workers”.
Smart Hub is provided to mobile operators on a SaaS (software-as-a-service) basis. The core platform is still internet based but the company is already starting to deploy blockchain technology – notably in areas such as sanction risks, where security is paramount. Long term, Mulhim expects that blockchain will take over as the leading platform for RegTech solutions, irrespective of the growth in crypto currencies, in international money transfer.
Beyond regulatory compliance, RegTech is opening up new international remittance channels. EastNets also offers a business intelligence software which reports to banks on money transfers. This product, combined with Smart Hub, allows EastNets to identify the type of payment e.g. whether or not it is a cross border payment, or whether it’s related to settlement work or if it is a remittance. It can then advise on the lowest cost transfer method, for example whether or not to use the SWIFT network. So RegTech solutions pose low cost competition to the traditional channels for international transfers and potentially can further reduce remittance charges!
RegTech may be a newcomer to the FinTech space – but its potential to disrupt the international remittances market is enormous. Join us at the Global Money Transfer Summit, on 26-27 March in Cape Town to hear from EastNets’ Hazem Mulhim and other pioneers of the RegTech revolution.