#30 – RegTalks with Koen Vanderhoydonk, The Connector

Episode Notes

For the 30th episode of RegTalks – the first one available also as a video podcast on the Know Your Customer YouTube channel – host Claus Christensen sits down with Fintech and RegTech influencer Koen Vanderhoydonk to discuss:

• The importance of speaking the same language as your bank clients to ensure the success of your RegTech company
• Why “being human” and not being afraid to show your failures is your best chance to break through the noise on social media
• How the “flavours” of RegTech vary across different regions of the world
• Why embracing ChatGPT is a must for RegTech and Fintech companies looking to scale

Koen Vanderhoydonk is a FinTech and RegTech influencer with an international following. He is the author of “The RegTech Black Book” and its sequel, and the founder of “The Connector” ecosystem, which offers effective localisation and scaling services to help startups and businesses grow. With over 25 years of experience managing B2B companies in the global financial industry, Koen has worked for Euroclear, SaxoBank and Blanco, among others.

RegTalks is a podcast produced by Margherita Maspero for Know Your Customer.

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Episode Transcript

Claus: Welcome to RegTalks, a podcast dedicated to the latest trends from the world of RegTech, Fintech and financial regulations. My name is Claus Christensen and I’m the CEO and Co-founder of award-winning RegTech provider Know Your Customer. Today, it’s my great pleasure to welcome Koen Vanderhoydonk as my guest. Koen is a fintech and RegTech influencer with an international following. Here’s the author of the RegTech Black Book and its sequel, and the founder of The Connector ecosystem. With over 25 years of experience managing B2B companies in the global financial industry, Koen has worked for Euroclear, SaxoBank and Blanco, among others. Koen, thanks so much for accepting the invite.

Koen: You’re welcome, Claus. It’s a pleasure to be here.

Claus: Thanks. So let’s break the ice. Could you share with us the story of how you became involved in the RegTech industry? What inspired you to pursue this field and how has your journey in RegTech been so far?

Koen: Do you have a couple of hours, Claus, to listen to my story? No, I actually started working in a bank,  Euroclear, that’s where my career started, pretty much on the first line of defence. And then I changed to become a general manager of a bank and it’s there that I realised that your collaboration with the second line and the third line was very important to actually bring solutions to the market that were innovative to the financial industry. And it was my boss at the time who said to me: “Koen, if you want to be a good banker, you can only be that by knowing your compliance stuff in and out, and you really collaborate with the compliance people”. And I really took that to heart and still today I’m very surprised sometimes how the relationship is between the 1st and the 2nd line, where, in my opinion, you need to collaborate, you need to celebrate together. It’s a tough world in the end but this is where both meet. And that’s the part where, for me, the regulatory part came in. And then later on I was inspired by everything that has to do with technology. I was sort of born to be an engineer, but I eventually did not become one. I became a banker instead, but the part of technology was always there, and for me I always looked for jobs where I could combine both the human element, which I think compliance is also part of, and the technology element. And if you can bring those together, it’s very easy to come to RegTech.

Claus: That’s both similar and very different from my own journey here in RegTech. I was coming from a pure technology background first, so financial regulations were something new to me. But what a complex field, what an interesting field as well.

Koen: I can imagine, and this is also something that I found along my journey. Because when I was a youngster, I think I was in my early 30s when I became a general manager of a bank, looking up in the companies I had worked for before, I had the utmost respect for the directors that were running the shop, but I also realised that there was a large generational gap between my layer and the layer on top. So, at a very early age, I started to think about and be concerned about the fact that the future of banking was literally relying on our generation to take up and that was for me, maybe not so much the rolling into RegTech, but it was more the start into Fintech. I realised that technology was really an enabler for many banks to bring innovative solutions, not only for themselves, but particularly for their clients. And you hear so often nowadays that user experience still is the main driver for innovation.

Claus: Agree there and we’re still all working on that field to reduce the number of clicks needed to do things and improve the user experience. You work with a lot of different RegTech businesses, you have observed the evolution of a market from a very privileged position. In your experience, what are some of the most effective strategies RegTech companies can implement to stand out in an increasingly crowded and competitive space?

Koen: For me, the mantra is not so difficult. Speaking it out is not so difficult, but reality is more complex. And I think for a startup to be successful, let’s maybe call a RegTech also a startup, there’s a couple of important elements and it’s all about language. It’s to speak the language of the regulator, it’s to understand what’s really happening and really have a profound understanding about regulations. And I think RegTechs very often are privileged not to work in one jurisdiction but be able to and have to be present in multiple jurisdictions, so they get this sort of overarching view on what’s happening in the markets. Secondly, I think it’s also important for a startup nowadays to really start thinking and talking like a bank. What I mean by that is I remember starting up with Blanco a couple of years ago and people were looking very strangely at us, especially amongst fintechs, when we said we have set up the company with the three lines of defence from the start. “What? What are the three lines of defence?”. Then I explained, and they’d ask: “But why would you do that? It’s an additional burden on your startup”. No, it’s what you need to be able to talk and connect to the bank. Because, in my opinion, maybe that’s the third piece of advice or third thing that is important, you should align your sales efforts with the three lines of defence. Take into account that you will always need to convince the three levels. It’s the business, it’s compliance and you need to also show that you can control things and that you have proof of what you do.

Claus: That’s great advice and I can echo that. In the very beginning, as a technology company, we did not have the knowledge on how to talk to the client correctly. It took a lot of initial meetings that ended frustratingly with misunderstandings and with no deal to understand, really, what language our customers speak and to start speaking the same language.

But moving on from what the company should do to what the founders and leadership team should do… you have an absolutely fantastic presence on social media especially. I see you on LinkedIn and Twitter, and you’re probably present on even more platforms where I’m not. What’s the role of the individuals?

Koen: I think the role of the individual is key. At the end of the day, people want to do business with people, not with business names. So it’s all about who you are and how authentic you are in the industry. And for some, it’s easy because you share your own personal passion and then that radiates automatically to the audience. For others, this is more difficult. But maybe, as a tip, if you go on social channels, be yourself, don’t hesitate to be human. Failures are also part of life and you realise that emotions actually draw emotions from others. That’s really where you get the traction on the social media platforms and that’s also where you get satisfaction for your own. Because probably that is much more aligned with what you want to be, what you want to achieve. So, for me, people sometimes say: “Oh, Koen, you’re an influencer. Wow”. I say: “Don’t exaggerate”. Unfortunately, I don’t get perks like some Instagram influencers. The only perks I get is that I’m happy I’m allowed to come and work sometimes on conferences to speak or to be in panels. Especially what I like a lot is that I can say: “Well, look, I found a way to express my passion for banking and my mission to make banking accessible for everyone”. And the fact that I can do that gives me a lot of gratification, also by the fact of being present. So, I take away a little bit the notion of: “Yeah, you’re an influencer, so everything comes to you”. No, it’s the other way around. I found a way to express who I am and what I want to convey to the rest of the world.

Claus: I love that. Moving on to another topic, what advice would you have for aspiring entrepreneurs who want to enter the RegTech space particularly?

Koen: I think the advice would be simple: get out and meet other RegTechs. Be in the market, make yourself street smart, so that you know what’s already in the market and maybe there are possibilities and opportunities to collaborate with RegTechs that already exist. At the same time, I think entrepreneurship is something that maybe should be turned a little bit into INTRApreneurship because I believe there is a large opportunity for compliance officers today working in a bank to take the space of innovation. In the past that space has been taken a lot by innovation desks at larger banks, but now I feel that innovation is back where it belongs and that’s with the business, literally solving business problems. And that’s why I also believe that the compliance officer is really well placed to understand what’s happening between the business and technology. But in order to do that, the same advice counts. Get out of the door, understand your tech, and experience your tech. So maybe at the same time a large shout out to all the banks: please don’t hesitate or stop doing proofs of concept with RegTechs, because it’s only then that you learn and potentially you start figuring out that collaboration is the best way forward.

Claus: I absolutely agree. It is talking to customers that you need as an entrepreneur very early on. So, my advice would be not to build in private for a long time, but go out there and connect to potential customers. In this particular space, RegTech, especially if you want to talk and sell to financial institutions, “move fast and break things” might not be quite the right approach. Disrupting the space of compliance is probably a difficult thing to do in banking. So it’s probably better to assist and improve from within, and then change things rather than go out for all-out revolutions.

Koen: It’s that magical dance between mankind and machine, right? It always has to be initiated by a person. Because laws and regulations are made for people, they’re not made for machines. Maybe some would argue that some also are applicable to machines, I think about AI regulations, for example. But, at the end of the day, it’s all because we live in a society where we have values in which we believe, and we try to stick to those values, and that’s a human thing. So why would that be just fixed by technology? No, it has to be fixed by the spirit of people and that’s why I believe that the compliance role will continue to stay a very crucial role within the banks or within the financial industry.

Claus: Yeah, very true. So, what do you think are some of the most transformative technologies that are currently emerging in our space?

Koen: I think today data is the magic. A lot of the good solutions, especially within the RegTech domain, boil back to data. And it can go very simple, it’s how to use the data already available, how to sort it out, how to put it in better places, how to use the data, utilise the data that could be of high benefit for a bank. Because very often compliance departments are still done in a very manual, old-fashioned way, which works but could be improved. So I follow you by saying improvement. Maybe the technical innovation is not as sexy as we want it to be. On the other hand, everyone today is using the word AI. AI is hot, especially with ChatGPT and other new features that came out that brought this to the streets and to the people. My mother is even talking about it, suddenly she knows what ChatGPT is. Wow, cool. I do believe that there is also an opportunity for AI. But what you see is that AI is very often used as a buzzword, but in practice, it is literally like the good old days… yes, you may be using a little bit of AI to better understand the data. And that brings me to what I think is the next thing to come: it’s around data collaboration. Today data is very sticky around one financial institution and it’s hard to share because if you start sharing, you share your crown jewels and that’s not what you want because you earned the trust of your clients and you don’t want to just put that for everyone in the markets. So nowadays, data collaboration is the new kid on the block and that sort of allows you to have multiple data sources to run queries, advanced analytics on them, even AI, if you want algorithms but you don’t jeopardise the privacy of any data sources. And something that you see very strongly in Europe, even if it’s a little bit hidden at the moment, is the data Governance Act, which is literally promoting and giving handles to the industry and not even just the financial industry, but the industry as a whole, to start collaborating on data and it’s giving a sort of structure to do this. So in my opinion this is something we’re probably going to see more on in the next 5 to 10 years.

Claus: We are taking part in such initiatives as well. Thanks for mentioning ChatGPT, it has also been on my mind constantly. I’m personally very excited about the prospects of that technology and in fact, a couple of weeks ago, I wrote the “GPT memo”. I think that will be a thing we will see from many CEOs around the globe who will ask their staff what I asked my staff, which is to all try it out, to work with it and to come back with ideas on how this new large language models would be integrated in our products and in our personal workflows and make us more productive. There’s a giant opportunity there and it’s certainly not a technology that you want to ignore, but really engage with and go forward with.

Koen: No, but that’s great to hear. And I think that should be an inspiration to many others, because I also heard banks or institutions in the industry that formally say “No ChatGPT within our company, none whatsoever”. And I think your approach is much healthier. For a long time, we said: “Oh, AI is up there. It’s up in the air one day, one time this will happen. Rise of the machines, it’s far away”. And then suddenly: ChatGPT comes. I was like: “Wow, this is so real. It writes like a human. It’s maybe even better than myself because it’s so quick. It gets angles to conversations that I never saw”. So yes, there is a certain truth to this, but at the same time it’s also the tip of the iceberg, because the data it’s been running on its data from the past. So what companies don’t think about is that if you use similar technologies that can run on your own data sets in a trusted environment, maybe the idea of giving strange answers and 99% correct and 1% wrong is not so much more applicable. And to come back on the human being, we should never forget we are in control. So if 99% is provided and is correct, if you’re smart enough, you can actually realise what’s the 1% left and you only change the 1%. You gain a lot of time by doing this. So I personally believe that you’re right, people should try and test within certain boundaries.

Claus: Yeah. We discussed a lot of things already here, but I have one more question before we end here. You’re in touch with multiple markets and regions… where in the world would you say that the most exciting RegTech innovations are taking place?

Koen: I think RegTech is happening everywhere, but there are different flavours wherever you go. What I particularly like myself, and that’s a personal view, is what you see strongly in Asia, which is the collaboration between the regulator and the market, especially the Fintech market. So there’s a lot of collaboration happening and pulling things together, allowing for space to invent and to innovate. I see that a little bit less in Europe. On the other hand, if you look at Europe, we are known to be front runners in terms of putting regulations on things. For example, look at GDPR. I think we should be very proud, as Europeans, of that regulation because it changed the world and it’s giving more responsibilities to us and less vulnerabilities to the outside world. So, I think every region has its quality and I would rather say, and maybe that’s a very correct answer, that we should all collaborate and learn from each other.

Claus: I like that answer very much. There’s different things going on in different parts of the world, but if we put it together then we get a much better outcome. Absolutely.
So last question I ask all my guests if tomorrow you woke up and somehow you had become the global financial regulator, what would be the first thing you would do and why?

Koen: Well, I think the answer is very simple, Claus… I would try to unify regulations worldwide because I see one showstopper in terms of innovation. If you want to bring benefits to the end customers and drive financial inclusion, it’s very difficult as a whole globally to make it happen because we by default are inefficient as we’re different. And we’re not different in terms of the global way of thinking, but the devil is in the detail, or the detail is the devil, and that’s something that I would change.

Claus: Thank you so much, Koen. That was really fun.

Koen: Thank you for having me.

Claus: And yeah, we’ll speak again, I’m sure.

 

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