The digital catalyst: How RegTech is bridging the financial divide

In an era where digital transactions have become the backbone of global commerce, the intersection of technology and regulation plays a pivotal role in shaping a future where financial services are accessible to all.

This creates interesting avenues for us to delve into, especially the transformative power of Regulatory Technology (RegTech) in fostering financial inclusion by crafting a regulatory landscape that nurtures the growth of electronic transactions.

The RegTech Revolution

At the heart of this revolution is RegTech, a burgeoning sector that leverages technology to streamline regulatory processes, ensuring that they are not just hurdles to overcome but pathways to greater efficiency and security. Innovative regulatory solutions are at the forefront of creating an environment where financial access is not just a privilege for the few but a fundamental right for the many.

The essence of financial inclusion lies in its capacity to act as a catalyst for economic growth and social development.

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By enabling access to financial services, electronic transactions serve as a bridge across the financial divide, connecting underserved populations to the global economy. However, this bridge needs solid pillars to stand on, and that's where RegTech shines, offering tools that streamline compliance, bolster security, and enhance the overall efficiency of financial operations.

Regulatory Technology developer, Global Voice Group (GVG) Chief Executive Officer James Claude says that “through the application of artificial intelligence, blockchain, and sophisticated cybersecurity measures, RegTech significantly reduces the operational costs and complexities associated with regulatory adherence, enabling financial institutions to extend their services to previously underserved or unbanked populations." 

While this still means that around half of the population is unbanked and cash remains the dominant form of payment, digital banking continues to expand at pace across the continent.

By so doing, RegTech plays a crucial role in breaking down barriers to financial inclusion and promoting a more equitable economic participation. Today, 48% of Africa's population uses banking services, according to the African Digital Banking Transformation Report 2023”.

He also notes that “over the past few years, West Africa has emerged as mobile money’s new powerhouse. In 2023, over a third of new registered and active 30-day accounts globally were from West Africa. International remittances and merchant payments were among the fastest-growing mobile money use cases in 2023.

Transaction values for international remittances grew to almost $29 billion, a one-third increase compared to 2022, with much of this growth driven by West Africa. Merchant payments grew by 14%, reaching around $74 billion in 2023”.

Bridging the Gap

Electronic transactions, with their convenience and speed, are instrumental in bridging the financial gaps that have long plagued underserved communities. However, the journey towards inclusive finance is fraught with challenges, from regulatory hurdles to security concerns.

It's in this challenging terrain that RegTech emerges as a beacon of hope, providing solutions that not only meet these challenges head-on but also transform them into opportunities for growth and innovation.

Real-world case studies illuminate the path RegTech has carved towards financial inclusivity. For instance, in regions where traditional banking infrastructures are scarce, mobile money platforms, underpinned by robust RegTech frameworks, have revolutionized access to financial services.

These platforms leverage automated monitoring, advanced identity verification, and risk assessment tools to ensure secure and efficient transactions.

“GVG systems have captured, verified, and analyzed 1T USD worth of mobile money transactions since 2014, illustrating the substantial impact of technology-driven financial inclusion initiatives in Africa. In Africa, RegTech has been instrumental in enhancing financial inclusion through innovative platforms like Kenya's M-Pesa, which simplifies mobile money transfers and financial services for the unbanked, and Nigeria's Flutterwave, which navigates complex regulatory landscapes to facilitate secure cross-border transactions. JUMO leverages AI and data analytics to offer microloans and financial products to those without traditional banking access, while BitPesa uses blockchain technology for compliant and efficient international money transfers.

These case studies demonstrate RegTech's transformative role in overcoming barriers such as regulatory compliance, cybersecurity threats, and the high costs of financial services, thus enabling broader access to financial services across the continent, fostering economic participation and growth among previously underserved populations”, said Mr. Claude.

A collaborative future

The narrative of RegTech's role in promoting financial inclusion is incomplete without acknowledging the collaborative efforts between regulatory authorities and industry stakeholders.

It is through this synergy that RegTech solutions have been able to foster a regulatory environment conducive to innovation while maintaining the integrity and security of financial systems.

“Collaborative efforts between regulatory authorities and industry stakeholders are crucial in leveraging RegTech for advancing electronic transactions and financial inclusion. This collaboration fosters a regulatory environment that is both supportive of innovation and attentive to compliance and security concerns. In Ghana, GVG’s implementation of the Revenue Assurance Platform in 2018, helped the Ghana Revenue Authority gain great visibility into the revenue streams generated in the telecom market, helping to improve revenue assurance and policy-making capacity."

"By working together, regulators can gain insights into the practical challenges and technological capabilities of the financial sector, leading to the development of more effective and flexible regulatory frameworks. Meanwhile, industry stakeholders can ensure that their innovations align with regulatory expectations, reducing the risk of non-compliance and encouraging the adoption of new technologies. The result is a dynamic financial sector that can adapt to emerging trends, safeguard against risks, and offer a wider range of services to underserved populations”, said Mr. Claude.

As we look to the future, the message is clear: continued collaboration is the key to advancing RegTech solutions and, by extension, fostering a more inclusive financial landscape. By embracing the potential of RegTech, regulators and industry leaders can ensure that the digital economy is not just a space for economic transactions but a platform for social inclusion and empowerment.

In conclusion, the journey of financial inclusion is an ongoing one, with RegTech playing a crucial role in ensuring that this path leads to a future where financial services are accessible to all, regardless of their economic background. As we continue to navigate the digital age, the fusion of technology and regulation holds the promise of a more inclusive, secure, and efficient financial world.

The writer is the CEO, Global Voice Group.