The announcement by the RBI governor Shaktikanta Das to set up a regulatory sandbox is a potential game changer for the Indian fintech sector. The sandbox will help in bringing innovative solutions to market at a very fast pace and at a much lower cost than today. This will help speed up financial inclusion in India while also encouraging entrepreneurship, creating employment and increasing GDP.

Business Tool

A regulatory sandbox is a regulator-driven initiative which allows businesses to test innovative products, services, business models and delivery mechanisms in a live environment. Typically, some regulatory requirements are amended to create a bespoke framework for the duration of an on-market trial.

A sandbox will have lesser compliance requirements for fintech firms for a short duration until their innovation is tested and ready for launch. The UK, Canada, Australia, Singapore and Hong Kong already have regulatory sandboxes that are up and running. These sandboxes have tested several concepts that have many positive customer impacts including access to finance, better financial planning, increased savings, more transparency on financial products, etc.

When I started my venture in 2018, I had to raise Rs 2 crore to satisfy a regulatory requirement. I also had to wait a few months to get all the necessary approvals and complete the compliance around it. Having raised so much money from investors and after investing so much time there was an expectation to succeed. Such expectations while creating stress, also reduce the appetite to be innovative and take risks.

Lessons From The UK

The UK’s financial services regulator, the Financial Conduct Authority (FCA), first launched its sandbox in 2016. They did an assessment of companies accepted in the first cohort of the sandbox and the results were very promising. Up to 75 percent of companies completed testing at a very fast pace and 90 percent of these were planning to scale up post the testing. More than 40 percent of these forms also got funding as regulatory uncertainty during the testing phase was taken away, making the investment safer. Most of the companies also got full regulatory approval.

The learning from the UK is applicable to India as well. New ideas can be tested very quickly prior to scaling. Regulatory and compliance requirements can be limited and according to scale rather than a one size fits all model. Investors will get greater confidence due to the lower amount of investment needed and because of greater regulatory certainty.

With the cost and time of failure (in some cases) reducing, many new entrepreneurs will be born who would now have the appetite to make the small(er) time and cost commitment. The stress levels of entrepreneurs will also reduce due to lower regulatory and investment requirements. New businesses models that prove successful will scale, contributing to India’s GDP, tax revenue and employment generation.

A regulatory sandbox will thus lead to the next phase of growth for the fintech sector in India.

Sameer Aggarwal is founder & CEO of RevFin

First Published:Apr 24, 2019 11:21 AM IST