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.
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.
The framework should address all the gaps and associated risks
while considering the growth requirements of this sector.
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.
What is a sandbox ?
A sandbox is a shallow box placed in the park for children
to play in.
However, in case 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.
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
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.