In a move to promote technological innovations aimed at financial inclusion, the Reserve Bank of India (RBI) had proposed to set up regulatory sandboxes where startups could test new products, services or business models with customers in a live environment, subject to certain safeguards and oversight. On August 13, 2019, the central bank released the final Enabling Framework for Regulatory Sandbox after a wide-ranging consultative process with stakeholders.
Accordingly, on 4 November 2019, the Reserve Bank announced the opening of first cohort under the Regulatory Sandbox (RS) with ‘Retail Payments’, as its theme.
“The adoption of ‘Retail Payments’ as the theme is expected to spur innovation in digital payments space and help in offering payment services to the unserved and underserved segment of the population. Migration to digital modes of making a payment can obviate some of the costs associated with a cash economy and can give customers a friction-free experience,” said RBI in a statement.
RBI had set up an inter-regulatory working group in July 2016 to look into and report on the granular aspects of fintech and to review the regulatory framework and respond to the dynamics of the rapidly evolving fintech scenario. The expert panel headed by Sudarshan Sen, Executive Director, RBI released its report on 8 February 2018 for public comments. One of the key recommendations of the working group was to introduce an appropriate framework for a regulatory sandbox.
Salient features of the cohort:
- The innovative products/services which, among others, shall be considered for inclusion under RS are as follows:
- Mobile payments including feature phone based payment services – General innovation in mobile payment services has focussed on or supported app-based access, limited to smartphones and such devices. There is a need to innovate payment services for feature phones to provide the necessary thrust towards enhanced adoption of digital payments by various strata of society.
- Offline payment solutions – Consumer behaviour has been driving growth of digital payment systems as more and more consumers are embracing mobile technology. Though mobile internet speed has risen, connectivity issues remain unresolved in large areas. Therefore, providing an option of off-line payments through mobile devices for furthering the adoption of digital payments is required.
- Contactless payments – Contactless payments, while decreasing the time taken for payment checkout, also ease payments for small ticket payment transactions. Tokenisation technologies often form the basis of facilitating seamless e-commerce experiences fuelled by mobile and other connected devices. The rapid growth in devices provides a significant opportunity for payments through any form factor and anywhere.
- The live testing of new products or services in a controlled environment may require a bank/NBFC/any other partner for the testing to commence. In such cases, a suitable partner may be secured in advance to be eligible for admission to the RS.
- The entities meeting the eligibility criteria as laid out in the framework may apply, along with information listed in Annex I(Fit and Proper criteria for Director(s)/Promoter(s) of sandbox entities) and Annex II (Declaration and Undertaking by Promoter/Director), for the first cohort under the RS.
- The window for submission of application for the first cohort shall be open from November 15 to December 15, 2019.
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