The RBI sandbox for fintech: All you need to know

What is a sandbox?

A sandbox is often mentioned in the context of financial technologies companies or fintechs. It is an enabling infrastructure or interface, which is made available to an outside innovator or fintech by a bank, so that they can test their product and services. The sandbox not only protects the bank's core banking solution (CBS), which is the backbone of a bank or a financial institution, but also allows a CBS kind of interface for testing a product in a scalable manner. This live testing reduces time to market and also allows a room for failure without actually going for a commercial launch.

Importance of sandbox

A few years ago, when fintechs sprouted in the financial services space in payments, lending and advisory services, some were of view that eventually banks would become irrelevant or these new technology companies would disrupt the banking business. Today, many large banks are engaging with hundreds of fintechs for servicing their customers better. The success of current partnerships has come about as these Fintechs first created a commercially successful product and then banks accepted them. However, there are many new fintech companies around, who have innovative products but they want to test it with banks initially to assess the success. A sandbox kind of an environment would allow this to happen in a seamless manner.

Regulatory framework

Globally, there are regulators that have allowed sandbox interface to innovators by allowing banks and financial institutions to share customer data with them in a secure environment. The RBI recently said that it would be shortly allowing sandbox in India by creating a regulatory and supervisory framework for the banks and institutions. A regulatory relief would encourage a good ecosystem for fintechs to test their products live with the customers and also address the security concerns of bankers. Once approved, these products would go live for customers.

Concerns about sandbox

The customer's privacy and data protection are some of the key issues when it comes to sandbox. The customer's data is very important and any leakages not only mean a loss of reputation but can also result in law suits for the bank or financial institution. The security is yet another concern as banks are exposing their systems to start-ups or innovators, which are not regulated by any entity. These start-ups may or may not survive tomorrow, so the question is who will ensure the safety of the data?

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