The recently announced framework for regulatory sandbox by the Reserve Bank of India (RBI) is a progressive and much-needed step. Example a founder of a fintech startup that has developed a mobile app for farmer that allows him to track local weather updates, purchase seeds,crop insurance , commodity put options and manage his cash flows from sales. This app could be a one-stop solution for many needs of a farmer and with technology innovation it’s feasible. However, before it can be launched, the fintech startup would need to get regulatory approvals and comply with necessary conditions. Often the challenge for fintech starups is that regulation does not explicitly cover what they plan to do since it’s a completely new product or service. Ambiguity around governing regulations hampers innovation and the ability to scale.
A regulatory sandbox is a useful tool for the regulator and fintech innovators for such situations where there is absence of governing regulations or where there may be a need to modify existing regulations because the proposed innovation shows the promise of ease to customers in a significant way.
According to NITI Aayog, India is one of the fastest growing fintech markets globally, and industry research has projected that $1 trillion, or 60% of retail and SME (small and medium sized enterprises) credit, will be digitally disbursed by 2029. The Indian fintech ecosystem is the third largest in the world, attracting nearly $6 billion in investments since 2014. Fintech or financial technology companies use technology to provide financial services such as payments, peer-to-peer lending and crowdfunding, among others.Therefore, in order to protect customers and safeguard the interests of all stakeholders, and streamline their influence on the financial system, there is need for a regulatory and supervisory framework for fintech firms
Regardless of their specific terms, structures or mandates, regulatory sandboxes clearly work. They act as an impetus to innovation, build trust among stakeholders, protect consumers and result in sensible and forward-looking regulations. By introducing a sandbox for payments, the RBI could achieve the much-needed balance between innovation and regulation and help the Indian fintech industry achieve its full potential.
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