India is now the largest user of mobile data in the world and smartphone ownership is rapidly rising. This has enabled the mass adoption of digital technologies.
India provides a unique opportunity for Fintech entrepreneurs to begin operations as the largest under-served population in banking and other financial sectors. India’s deep talent pool for software engineers and developers also makes it a ready base from which to develop fintech applications. Government support, especially in the payment segment has been significant with the financial incentives being provided to individuals and merchants to adopt digital payments.
The Reserve Bank of India (RBI) on April 18, 2019, published the terms of its fintech-focused regulatory sandbox. The RBI advocates a regulatory sandbox approach to test the pros and cons of emerging trends in fintech including blockchain technology, machine learning and artificial intelligence (AI).
Following in the footsteps of its global counterparts, RBI, in a collaborative effort with IDRBT, has recommended the creation of a regulatory sandbox.
Initial introduction to a regulatory sandbox will ensure that the services offered by the Fintech companies are truly tried and tested before it is rolled out to the masses. This will help mitigate any unwarranted risks and ensure that the regulator has absolute authority to inspect the product from all angles before mass introduction. The regulatory bodies must take a hands-on approach and keenly supervise the operations of bodies which are a part of the sandbox for quick identification of any loopholes/risks and facilitate speedy implementation.
- Regulators obtain first-hand empirical evidence on the benefits and risks of emerging technologies and their implications, enabling them to take a considered view on the regulatory changes or new regulations that may be needed to support useful innovation, while containing the attendant risks.
- Users of a Regulatory Sandbox can test the product’s viability without the need for a larger and more expensive roll-out. If the product appears to have the potential to be successful, the product might then be authorized and brought to the broader market more quickly.
- Fintechs provide solutions that can further financial inclusion in a significant way. The Regulatory Sandbox can go a long way in not only improving the pace of innovation and technology absorption but also in financial inclusion and in improving financial reach.
- Provides a structured and institutionalized environment for evidence-based regulatory decision-making, the dependence of the regulator on industry/stakeholder consultations only is correspondingly reduced.
- The Regulatory Sandbox could lead to better outcomes for consumers through an increased range of products and services, reduced costs and improved access to financial services.
Risks and Limitations
- Innovators may lose some flexibility and time in going through the Regulatory Sandbox process (but running the sandbox program in a time-bound manner at each of its stages can mitigate this risk).
- In different cases the authorizations and regulatory relaxations can involve time and discretional judgements.
- RBI or its Regulatory Sandbox cannot provide any legal waivers.
- A successful experimenter may still require regulatory approvals before the product/services/technology can be permitted for wider application.
- Regulators can potentially face some legal issues, such as those relating to consumer losses in case of failed experimentation or from competitors who are outside the Regulatory Sandbox, especially those whose applications have been/may be rejected.
One of the proposals which have been repeatedly stressed upon is that co-operation among the financial entities of the country, especially already established banking institutions is of paramount importance for the survival and growth of a digital India. Rather than competing, Banks should aim at integrating and/or co-ordinating with such entities and look for application of their technology into the day-to-day workings. This will not only supplement the growth of both parties, but the general public would benefit from the onset of such time and cost efficient services as well.
Parangat Technologies hold the experience and expertise in developing FinTech applications for our customers. One such being RevFin (an NBFC company). Optimum business model, smooth UX, instinctual workflow and cutting-edge security features for information channels make for an integral part of our FinTech solutions.