{Startup Watch: Nerve Solutions} Boutique Fintech Regtech Consulting and Risk Management

This fintech startup has quietly turned into a trusted technology partner to some of the largest financial broking companies in India, positioned as a boutique fintech and regtech consulting and development firm.

The stock market is the riskiest yet most lucrative of investment options. Reason enough for investors to look for smart technological tools that can help them make better investment choices.

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Rising volatility and the high number of fraudulent activities have fuelled the growth of the regtech market globally. Increasing need for risk and compliance management has led to the increase in adoption of regtech products.

Nerve Solutions, a fintech platform, specializes in providing technology solutions to financial brokers.

The Tech Panda spoke to Mihir K. Malani, Founder of Nerve Solutions, about what is making the regtech market in India tick and their startup journey in this industry.

If there is a strong foundation of risk management in any business scaling up, it becomes easy and it helps them grow. It helps them focus on their most important aspect, which is their main core business

“If there is a strong foundation of risk management in any business scaling up, it becomes easy and it helps them grow. It helps them focus on their most important aspect, which is their main core business,” he says.

In 2018, the US led the regtech market in North America, while the UK is expected to continue dominating the European market. The global regtech market size is expected to reach US$ 55.28 billion by 2025. Nerve Solutions aims to capture a global market share of 2% by then.

Malani says the reason behind this growth in regtech is the number of people trying to misuse technology, even as it has grown.

“It is of utmost importance in financial markets that we stay one step ahead of the mischief makers or of the entities who are trying to create mischief. That’s one of the reasons that regtech has gained a lot of focus over the past couple of years,” he says.

Nerve Solutions’ proprietary risk management system, n.Prime, is currently monitoring risk for an average daily asset size of about US$75 million, and they expect this number to double over the next quarter.

“The idea is to let financial services companies, trading desks, and risk managers know exactly where they stand at all points in time. So, when something goes wrong, or when it´s about to go wrong, they are somewhere prepared,” he says.

“Also, when there’s a sudden market movement, or when there’s a certain event, there’s no need for them to scramble across the desk trying to identify where they stand and what their losses can be,” he adds.

Plugging the Gap in Risk Management

Malani started Nerve Solutions in 2018, which is now a team of about six techies. Having spent a career in fintech companies in the past, over time, it was a common realization for many like Malani, that when it came down to risk management and to surveillance systems, there was always a gap. They were forced to settle for a system that was not the optimum solution.

“We had to settle down for something that wasn’t the fastest of systems. And then there was a lot of human intervention that we had to do, which would slow down the system, open us to risks. A lot of times, we were not even aware that we were open to such an extent,” he reminisces.

We had to settle down for something that wasn’t the fastest of systems… we would just thank our stars that things didn’t go wrong, because if they would have gone wrong, they would have gone horribly wrong

They would often find out about the risks they were exposed to two or three days later.

“And then we would just thank our stars that things didn’t go wrong, because if they would have gone wrong, they would have gone horribly wrong,” he recalls.

Every time this happened, Malani realized how much more can be done when it comes to managing risks.

n.Prime: A Risk Management Engine

Their market product is n.prime, which stands for Portfolio Risk Management Engine. It allows organizations, trading desks, broking companies, hedge funds, and family offices to manage the real-time risk of their entire portfolios and teams, no matter how geographically scattered.

The product is an automated system that helps in identifying and quantifying risk, deciding on the corrective action, and then taking the action without the need for human intervention, all in a matter of a few milliseconds.

It is of utmost importance in financial markets that we stay one step ahead of the mischief makers or of the entities who are trying to create mischief. That’s one of the reasons that regtech has gained a lot of focus over the past couple of years

These features use Machine Learning and Artificial Intelligence to predict risk, so that the system is not just reactive (like other systems available globally) but also predictive. It can perform 0.9 million + computations per second, and it also has a feature like auto-stop.

“We throw numbers that inform the risk manager, that this is where you stand. We try to project losses so that we are giving the worst-case number to the risk manager at all possible times,” Malani explains.

Global Regtech Market Vs. Indian

Looking at the Indian regtech market, regulatory bodies like SEBI and the exchanges have been trying to ensure that the regulatory framework is not only implemented, but also enforced.

With regards to companies, in the global play field, companies like Murex, Bloomberg, and NASDAC are dominating the entire space when it comes to capital markets.

“These companies have been doing an excellent job when it comes to risk management and surveillance, but that said, it leaves a big opportunity for other players to come in, because a huge space dominated by just two or three or five players at max, shows that there is a lot of scope for things to be done and improved,” says Malani.

There is no big player who can plug all the loopholes that people can make use of, be it identifying risks, suspicious behaviour, or predicting risk, predicting suspicious behaviour, and doing so in real time, throwing the right alerts, letting the right people know of what’s happening and what could possibly go wrong

He adds that in India, smaller firms are trying to fill in these gaps, but there’s no single big player who can plug all the gaps.

“There is no big player who can plug all the loopholes that people can make use of, be it identifying risks, suspicious behaviour, or predicting risk, predicting suspicious behaviour, and doing so in real time, throwing the right alerts, letting the right people know of what’s happening and what could possibly go wrong,” he says.

He explains that these tasks are difficult to achieve, especially in financial markets where the size of data is so huge and dynamic.

“There are data points changing almost every nanosecond. With so much data and so much speed, it becomes difficult to create systems that can match up to do these events, which are happening in real time. That’s where the challenge is. That’s what people in this space should be trying to solve. That’s what we are trying to solve,” he says.

COVID-19 Impact

Nerve Solutions´ client base has jumped more than 40% as compared to the pre-COVID era. N.Prime has played a critical role, especially since the onset of the high volatility regime owing to COVID-19. Malani explains how the virus has made companies cautious, as it has brought on volatility.

The moment you take away the entire risk monitoring part, it becomes like a black box, or it becomes a blind spot for them. And whenever there’s a blind spot, people will stop short of investing. They will stop short of going all guns blazing. They stop short of going all in

“Over the last one year, because of COVID, market volatilities have increased. At these times, it is absolutely necessary for financial services companies to know where they stand in terms of risks. It’s important for them to know that they can rely on certain systems, which are going to be real-time, which are going to tell them the true picture of the market and the true picture of their current positions at all times,” he says.

Risks are highest when markets are volatile. As long as there’s volatility in the market, risks are always high and can become a deterrent to growth.

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“The moment you take away the entire risk monitoring part, it becomes like a black box, or it becomes a blind spot for them. And whenever there’s a blind spot, people will stop short of investing. They will stop short of going all guns blazing. They stop short of going all in,” he explains.

“Our systems somewhere have given most of our clients the confidence to scale up, to know, that they have a reliable system, which they can depend upon in times of volatility and in times of sharp market movements. That’s what has helped us gain traction over the last one year,” he concludes.