Global regtech spending will exceed $204 billion by 2026; accounting for over 50% of all regulatory compliance spending for the first time, according to a new study from Juniper Research. This will grow from $68 billion in 2022; representing a growth of over 200% over the next four years. The report identified the integration of regtech services with BaaS (Banking-as-a-Service) models as key to realizing this future market growth.

The new research predicts that BaaS models, which include outsourcing regtech services such as digital onboarding, will be key in accelerating AI-based automation for online document verification and KYC (Know Your Customer) processes. AI-powered onboarding enables financial institutions to benefit from real-time progress reporting and automation, which help meet rising client expectations and reduce compliance costs.

According to the research, 26% of digital onboarding processes in the banking market will use AI systems by 2026, compared to just 8% in 2022. Beyond digital onboarding, the report suggests that regtech will leverage BaaS models to swiftly expand the use of AI in banking for more comprehensive tasks, including fraud detection and mitigation.

“Whilst the current benefits of AI are clear to regtech vendors, the immediate focus must be on ensuring the algorithms are fed the most relevant data to maximize their efficiency in verifying digital identities and future use cases. In turn, this will provide a differentiation point for regtech vendors in an increasingly competitive market,” explains research author Harshada Thok.

Additionally, regtech vendors must provide verification services in emerging areas where compliance is being disrupted, such as cryptocurrency exchanges, digital healthcare, and online gambling. Impending changes to regulations in these markets will provide significant opportunities for regtech vendors to broaden their focus beyond financial markets to capitalize on new addressable user bases.