A fintech working group set up by the Reserve Bank of India has called for the establishment of a regulatory sandbox and innovation hub where startups can roadtest their products ahead of commercial launch.
The inter-regulatory working group set up in July 2016 suggested that the RBI's Institute for Development and Research in Banking Technology (IDRBT) would be best placed to develop the fintech framework.
"In view of IDRBT’s unique positioning as a research and development institute, and as indicated by some of its activities, it is felt that IDRBT is well placed to create and maintain a regulatory sandbox in collaboration with RBI for enabling innovators to experiment with their banking/payments solutions for eventual adoption," the report recommends. "The Institute may continue to interact with RBI, banks, solution providers regarding testing of new products and services and over a period of time upgrade its infrastructure and skill sets to provide full-fledged regulatory sandbox environment."
The report said that between 2013 and 2014, the fintech industry in India grew 282% to reach $450 million in 2015. Currently, around 400 such firms are operating in the country and their investments are expected to grow by 170% by 2020.
Given the scale of innovation in the sector, the panel recommends that the country's regulatory bodies set up a "dedicated organisational structure" to deal with the policy implications of advancements in financial technology and use innovations in RegTech to remodel the supervisory process. A self-regulatory body for fintech companies is another option to be encouraged.
Other recommendations concerned the need for a stand-alone data protection and privacy law in the country to facilitate data sharing between banks and startups, and the possibility of introdcuing tax subsidies for merchants that accept an agreed proportion of their revenues from digital payments.