How this made in India no-code regtech startup is targeting global financial institutions

When Alok Tiwari and Sandip Mukherjee founded regtech startup CogNextAnalytics in April 2019, the total addressable market wasn’t in question at all. It only looked challenging to break into the high tide of global regtech.

Regtech is a portmanteau for ‘regulatory technology’ in the startup universe, as hundreds of tech ventures compete online to help banks comply with regulations for transaction monitoring, fraud and risk management, identity management, among other functions.

The market opportunity grew exponentially after the 2008-09 global financial crisis. As banks paid $321 billion in fines alone for lapses, regulatory watchdogs like the US Securities and Exchange Commission called for technology-driven accountability. Since then, banks and financial services companies spend a whopping $270 billion on risk and regulatory compliance activities every year, according to a MEDICI RegTech 2018 report. Of this, banks spend a massive $128 billion on technology.

Unsurprisingly, the action began to unfold in venture communities globally. 

Between 2013 and 2017, equity funding in global regtech was $4.96 billion across 585 deals, according to research analyst Lindsay Davis in a CB Insights report. Financial services giants Barclays and Goldman Sachs have also since invested in regtech startups like Kharon and Droit Financial Technologies respectively.

Mumbai-based CogNext Analytics is differentiating itself in the Regtech as a Service (RaaS) market with Platform X, a no-code regulatory compliance platform. The platform is available for both on-premise and cloud deployments.

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In the fast lane

As a no-code offering, Platform X allows business users in banks to change the configuration from the front end without any programmatic interventions or any support from the IT department. The banks’ risk, finance, and regulatory teams can thus respond quickly to any changes in the regulatory or business environment, Alok says. 

For instance, during the ongoing pandemic, CogNext customers could reconfigure models and recompute outputs with changes in customer behaviours and macro-economic environment with greater ease. Alok says this saved banks a lot of time. Further, the use of artificial intelligence (AI) and machine learning (ML) to simplify and automate regulatory compliance also makes the platform cost-effective for financial institutions.

To date, CogNext has 10 enterprise customers spread across North America, the West Asian markets of the Gulf Cooperation Council, Africa , and India. CogNext started its operations in India’s financial capital Mumbai, and added an R&D centre in Bengaluru apart from offices in key global financial centres London, New York and Dubai. It currently has a workforce of more than 35 in-house technology, data scientists, and subject matter experts in global risk and regulatory compliance.

CogNext closed the calendar year 2020 with an annualised revenue run rate of $2 million and growth of 300 percent.

“We are aggressively building global partnerships with leading technology and software companies to expand the reach. In certain markets such as Asia, Africa and the GCC countries, we have direct sales people,” says Alok, Co-founder and CEO of CogNext.

Platform X is built on cloud-native big data technologies such as Spark, Mongo, HDFS, and a UX designed for the business user. “The choice of these technologies brings high performance, AI-driven automation, scalability and open API based configurability at a fractional cost compared to legacy technologies,” he explains.

Alok says CogNext has demonstrated a record of delivering a 50 percent time and cost reduction in risk and regulatory function with 10X improvement in performance. The current applications on Platform X include ECL Compute (IFRS9/CECL), Balance sheet analytics, Basel III/IV, Model Risk Management, Integrated Stress Testing (IST), Portfolio Credit Analytics, and AutoML model development.

Furthermore, it enables the user to explore multiple methodologies interactively, empowers them with explanatory power, self-service, and traceability. Powered by Deep Learning and other ML algorithms, the offering streamlines the model workflow of the bank with reduced turnaround time, improved business volumes, and return on assets.

Offshore advantage

CogNext Analytics operates on a subscription-based business model. It generates revenue by charging an annual subscription fee from its clients, i.e., banks, financial institutions, non-banking finance companies, neo banks, and digital lenders. The annual fee is determined based on the asset size of each institution, and for specific modules subscribed by them.

“Financial institutions are always under high pressure of reducing the cost of regulatory compliance,” Alok says. “Most financial institutions use conventional technologies to manage regulatory compliance that is expensive, proprietary, closed, fragmented, and resource-intensive, which leads to extremely high-cost operating models for risk and regulatory compliance function.”

CogNext Analytics builds out and develops the platform offshore, with its engineering and products teams (14 employees in Platform R&D, eight in application engineering) based in India. It has five domain specialists, and a seven-member strong Customer Success team in India.

It now seeks to assist financial institutions to meet new regulatory expectations, offering a quick, automated regulatory computation and compliance platform for dynamic scenario analysis and capital planning process. This is vital amidst the high macroeconomic uncertainty across global economies.

Post-pandemic, the regulatory issues relate to credit loss computation, dynamic balance sheet forecasting, stress testing through automated model development, model execution, model monitoring, and regulatory reporting.

Future growth and plans 

Started with an initial investment of Rs 5-10 lakhs, the bootstrapped regtech startup is working on its growth trajectory and plans to increase its presence in existing markets 3X and grow in newer recently added markets Europe and the UK by the end of 2021. This is a highly competitive market with more than 60 regtech startups in the financial services industry including Signzy, IDfy, FixNix, CustomerXPs etc.

“CogNext’s current clients include large global banks, regional banks and financial services firms,” Alok says. It plans to raise capital in mid-2021 to “scale up sales and marketing efforts and accelerate the platform development by expanding our engineering teams”.

Current projections suggest it will cross $5 million in revenue in 2022, and grow its client base to 100-plus banks in the next three years through direct sales and partnerships. For this, it has established partnerships with Infosys, AWS, and Tech Mahindra to support its global expansion.

Founders Sandip and Alok have built a risk and compliance advisory firm before: Aptivaa, way back in 2005. It delivered risk management services to the global financial services industry, which grew to 150 + global clients in 35 countries. With CogNext, they want to repeat and scale up their regtech knowhow—faster and better.

(Edited by Kunal Talgeri)