As technological innovation continues to converge with other sectors, governments around the world are crafting ever stricter policies – and are increasingly firm on monitoring compliance.
New innovations in regulatory technology – regtech – have the potential to propel positive changes in global compliance culture and bring down the costs of doing business. Africa, already a global leader in innovative fintech solutions, may be the right environment to pioneer regtech solutions as well.
For companies operating across Africa, in particular, poor public records and opaque laws can lead to costly fines. In 2015, for example, Nigeria’s Communications Commission handed telecoms giant MTN a $5.2bn fine for non-compliance with mandatory SIM card registrations.
Regtech is often seen as a subset of fintech, which has successfully transformed traditional banking in Africa. Mobile money providers like Kenya’s M-Pesa, one of the world’s most successful fintech pioneers, have flourished, due in part to the Kenyan authorities’ decision to regulate mobile money differently than banks.
As fintech innovations such as seamless cross-border payments, digital currency, and blockchain-driven contracts have become more widespread across the financial sector, many regulators have been quick to approach them in a contradictory way. They want to encourage innovation, but reflexively regulate it, often limiting its effectiveness.
Regtech helps the financial sector lower the high costs of managing regulatory compliance obligations, and to use them as a competitive advantage. Its potential, however, goes far beyond financial services.
Other industries, for example telecommunications, face considerable regulatory compliance burdens due to strict rules around consumer data protection. Government requirements in some countries force telcos to register customers into a regulation-mandated SIM card registry, which can be a nightmare.
With low-quality national identity systems, poorly integrated digital infrastructure, and SIM churn reaching up to 38 percent in markets like South Africa, maintaining accurate databases is a persistent challenge. Regtech has the potential to make remote SIM card registration possible through facial recognition and digital platforms integrated with registries.
Companies in Africa are already building and marketing such solutions.
For example Flutterwave, a Nigerian company, provides a digital platform that allows businesses to accept and disburse payments across more than 30 African countries while maintaining compliance with the strict regulation of cross-border transaction.
In Ghana, mPedigree uses mobile and web technologies to secure products against fakes, counterfeiting and diversion. The Ghanaian company empowers corporations to protect their brands and governments to protect regulatory systems from counterfeit products.
Regtech’s potential is not just in the private sector: it can also help governments and the general public. Blockchain-based contract and property registration systems, for example, can make land transactions simpler, more secure, and more transparent. BenBen has created such a platform for public land registries in Ghana, using blockchain technology, and they are looking to quickly expand to other countries.
Technology can assist governments in reducing costs of old-fashioned, inefficient processes and advance public data access to help fight corruption. Ghana’s Paysail allows businesses and accountants to run payroll, file taxes and social security and pay employees digitally. This in turn helps governments raise their tax revenue, and improves ease of filing taxes for companies and employees.
Some central banks have also begun early explorations of blockchain for payments, clearing, and settlements. Government regtech has additional potential uses: making it easier to register or license a business, collect taxes, or create transparent bidding processes for contractors.
Even something as fundamental as providing budget information to the public is easier with government-focused regtech. BudgIT, a Nigerian company, has created a digital platform to tackle corruption by translating budget documents – which are complicated and thousands of pages long – into simplified, easy-to-read formats that the public can digest.
As a pioneer in fintech, Africa has enormous potential to leverage its experience to become a global frontrunner in regtech.
Investing in regtech is prerequisite for success. Businesses and governments will be better off when they have access products that make compliance and transparency a tool rather than a burden.