RBI To Set Up Regulatory Sandbox For Fintech Startups To Boost Innovation

The Reserve Bank of India (RBI) is looking to issue guidelines for setting up a regulatory sandbox or innovation hub for the fintech startups in May. This hub will help the companies build innovative products at a lower cost.

RBI governor Shaktikanta Das, said that there is a need for a definite regulatory and supervisory framework for the fintech startups. The framework is really important at this point to protect the customers and safeguard interests of all stakeholders.

While addressing the Fintech Conclave 2019, Das explained that the framework should address all the gaps and associated risks while considering the growth requirements of this sector.

He added that the sandbox will provide a well-defined space and duration to the players for experimenting with their products and fintech solutions. In case of failure, the consequences would be contained and the reasons will be analysed for betterment. The central bank has also encouraged the banks to explore ways in which they can establish alliances with fintech startups to drive the agenda of financial inclusion through innovation.

A sandbox is a shallow box placed in the park for children to play in. However, incase of software development, a sandbox offers a testing environment for the companies to test their software or coding.

The need of the framework may be a need of the hour at a time when the fintech space in India is growing and gaining a lot of attention.

According to a report by government think tank Niti Aayog titled, Digital Payments – Trends, Issues and Opportunities, the digital payment industry is expected to reach $1 Tn by 2023.

According to the ‘Indian Tech Startup Funding Report 2018, last year saw a sharp decline of 51.6% in the amount invested in fintech startups as compared to 2017, which is an indication of saturation in the Indian fintech sector, where licensing is going to be a decisive factor for VC investments in startups.

In order to develop the space, the government and RBI have been taking several initiatives. Earlier in January, it was reported that the central bank is encouraging more retail payments companies to participate in India’s rapidly expanding fintech digital transactions space on. On January 31, the central bank also launched the ombudsman scheme for online payments sector to redress the user complaints and grievances related to online transactions.

In order to boost the growth and ensure wider adaptability, the RBI also constituted a five-member committee named ‘High-Level Committee for Deepening of Digital Payments”.

The committee which will be headed by led by former Unique Identification Authority of India (UIDAI) chairman Nandan Nilekani, will be responsible for reviewing the existing status of digitisation of payments in the country, identify the current gaps in the ecosystem and suggest ways to solve them.

Recently it was also reported that the Securities and Exchange Board of India (SEBI) is also considering a ‘regulatory sandbox’ approach to make the best use of latest innovations such as blockchain and artificial intelligence in the market.

Not only India but many countries across the globe are warming up to the idea of fintech sandboxes. In 2018, it was reported that countries such as UK, US and Hong Kong entered into a strategic alliance to boost the growth of fintech.