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The Reserve Bank of India’s (RBI) regulatory sandbox refers to live testing of new products or services in a controlled or test regulatory environment

The application for the third cohort for medium, small and micro enterprises (MSMEs) lending use cases may be submitted from October 01, 2021 to November 14, 2021

For the second cohort, the RBI had received 27 applications from 26 entities, of which eight entities have been selected for the ‘Test Phase’ which will commence from the third week of September

The Reserve Bank of India (RBI) has announced that applications for the third cohort of its regulatory sandbox are now open. The third cohort, which will focus on lending use cases for medium, small and micro enterprises (MSMEs), was announced in December 2020 but the application window has now been opened. 

RBI’s regulatory sandbox refers to live testing of new products or services in a controlled or test regulatory environment for which regulators may (or may not) permit certain regulatory relaxations for the limited purpose of the testing.

The regulatory sandbox allows the regulator, innovators, financial service providers and customers to conduct field tests to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks.

According to the RBI, the application for the third cohort may be submitted from October 01, 2021 to November 14, 2021.

RBI Sandbox Second Cohort

Meanwhile, the RBI has also announced that the second cohort of the regulatory sandbox has moved to the testing phase with eight fintech startups. The second cohort theme was cross-border lending. Last year, the central bank had stated that India is the largest recipient of inbound remittances across the globe, accounting for 15% of the global share. India received $83 Bn in 2019 and $27.4 Bn in the first half of 2020.

In 2020, the RBI had reduced the net worth requirement from INR 25 Lakh to INR 10 Lakh, and allowed partnership firms and limited liability partnerships to participate in the regulatory sandbox.

The RBI had received 27 applications from 26 entities, of which eight entities have been selected for the ‘Test Phase’, which will commence from the third week of September. 

• Book My Forex Private Limited

The product facilitates fully online outward cross-border remittances to bank accounts and debit/prepaid cards overseas using VISA Direct and Mastercard Send, via digitisation of the process including digital KYC/ AML verification.

• Cashfree Payments India Private Limited

The product extends a cross-border payment platform to facilitates the purchase of assets listed on foreign exchanges (e.g. NASDAQ) like publicly-listed shares, exchange-traded funds i.e. ETFs and units of mutual funds, securities by Indian investors via local payment methods.

• Fairex Solutions Private Limited

The product provides an aggregation platform of leading cross-border payment providers for outward remittance.

The product is an online outward cross-border remittance platform for individuals as well as for businesses and facilitates digitisation of the remittance process, including digital KYC verification.

• Nearby Technologies Private Limited

The product ‘Paynearby’ facilitates routing the inward cross-border remittance to the beneficiary’s Aadhaar number as a virtual bank account, using existing RDA mechanism.

• Open Financial Technologies Private Limited

The product proposes a Blockchain-based cross-border payment system, leveraging the current infrastructure and ensures frictionless and tamperproof monitoring capabilities.

• SoCash India Private Limited

The product is primarily aimed at inbound and outbound tourists to/from India to facilitate cross-border retail merchant payments and cash withdrawal at select merchant outlets in India and Singapore.

• Wall Street Finance Limited

The product ‘WSFx SecuSmart REMIT’ facilitates contactless outward cross-border remittances with digital customer onboarding and remittance processing through a complete digital process.

Regulatory Sandbox First Cohort

In August 2019, the RBI had released the framework for its regulatory sandbox whereby a set of companies would be allowed to develop and test their products under limited regulatory controls and supervision. 

Announcing the framework, the RBI had said that no legal waivers will be given to the sandbox companies and companies will also be held liable for any consumer losses that might be incurred during the testing period. “Liability for customer or business risks shall be passed on to the companies entering the sandbox, ” the framework document added.

The first cohort of the sandbox under the theme “Retail Payments” have completed the test phase and solutions from six companies have been found viable. The companies have exited the regulatory sandbox and can now be considered for adoption by regulated entities subject to compliance with applicable regulatory requirements, according to the RBI.

The six companies include Nucleus Software Exports (Payse), Tap Smart Data Information Services (Citycash), Natural Support Consultancy Services Pvt. Ltd. (IND-e-Cash), Naffa Innovations Pvt. Ltd. (ToneTag), Ubona Technologies Pvt. Ltd. (BHIM Voice) and Eroute Technologies.