Why India Needs a Regulated Fintech Testing Hub A testing hub or sandbox helps entrepreneurs validate, test and evaluate their products before it is launched for the public

You fall and then you rise — this can just be the start-up mantra across all verticals. Many start-ups with good ideas fail to make the cut, owing to pressure from not just investors but also the market. More often than not, entrepreneurs fail to understand their consumers and when the product is launched, it too fails to connect with most.

This is where the need to have a sandbox or testing hub is most keenly felt. Here, sandbox, much like its literal morning, prevents start-ups from slipping into their doom.

A sandbox helps entrepreneurs validate, test and evaluate their products before it is launched for the public. This testing environment also helps entrepreneurs know the regulations of the business beforehand.

Though accelerator and partnered incubation programmes already exist in India, the need for a regulatory sandbox has been rising steadily, especially in the fintech sector. The government of India is coming up with new regulations for the space.

On the global front, Japan has recently launched a fintech testing hub and Bahrain launched a regulatory sandbox. The Monetary Authority of Singapore, too, has launched a regulatory sandbox that acts as a safeguard for fintech start-ups, allowing them to test their products.

The need for a regulatory sandbox in the fintech space that is accessible to start-ups across India becomes even more essential, owing to its ambition of becoming the next big Fintech hub in the world.

A Good Idea for India

India has currently over 900 start-ups in the fintech sector and the number is growing too fast. Experts believe that the opening of a testing hub or a regulated sandbox for fintech start-ups will help not just start-ups but also the government.

"It will be a good idea to have a regulated sandbox or a testing hub. One of its functions is to help start-ups build their technologies, leveraging the APIs provided by banks. So, they will be able to bring about real-time solutions on dummy data. Tech is evolving very differently these days and the introduction of a regulated sandbox will only enable new tech," said Venkatesh Hariharan, Director, Fintech, iSPIRT.

Akhil Handa, Advisor to MD and CEO and head of digital finance, Bank of Baroda, too, believes that a sandbox, especially at the regulatory level where multiple banks can participate, will work well for the Indian start-up ecosystem.

"Testing is often tedious or time-consuming, is what we have realized from our experience of engaging with fintech start-ups. They are always pushing the boundaries, which means they are dealing in sectors which are either unregulated or are not clear about the regulations. This is why it is important to have a testing hub at the regulatory level," said Handa.

Works for Both Sides

Having a regulated sandbox will not just benefit start-ups but also the government and corporations. They don't have to go hunting for innovative ideas that could revolutionize the sector. A sandbox would require banks to open up their APIs and Handa said they were already doing so with great passion. "We have already opened up a few of our APIs and we will continue to do so," he added.

Beyond the currently existing platforms, where banks are a part of accelerator and incubator programmes, at a place where decisions are formed and regulations are brought about, it often becomes difficult to keep up with the tech world. However, this could change things. "Having a sandbox will enable new, innovative tech in various areas, be it small-ticket lending or payments. This will also accelerate the government's goal of financial inclusion. Moreover, this will help the government know what are the innovations possible in the segment," added Hariharan.

A hassle-free Entrepreneurial Journey

Well, not completely hassle-free but closer. Entrepreneurs believe that having a regulated sandbox will do away with some of the hurdles that come their way. "It makes a lot of sense to have one. With a sandbox, with test APIs from partner companies or banks available on one platform, I will bypass the hassle of reaching out to them individually. Not just that, query resolution will be an easier process," said Vijay Khubchandani, a serial entrepreneur.