RBI to set up innovation hub for fintech firms

The Reserve Bank of India (RBI) said it will set up a fintech innovation hub, for which it is preparing soon-to-be-released guidelines.

The hub will allow fintech firms to live-test products with a set of users in a controlled environment before their launch.

RBI Governor Shaktikanta Das will meet with fintech companies over the coming weeks before issuing guidelines in the next two months.

The regulatory sandbox is expected to enable fintech firms to launch new innovations at a lower cost and in lesser time.

“RBI’s working group on fintech and digital banking…suggested the introduction of an innovation hub within a well-defined space and duration to experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analysed," Das said.

The idea of an innovation hub was first proposed in November 2017 by a panel headed by then RBI executive director Sudarshan Sen.

Das has urged banks to explore alliances with fintech firms to improve financial inclusion through innovation.

The fintech sector has been witnessing several reforms by the RBI over the last few years now. Guidelines on the maximum merchant discount rate that can be levied on debit card transactions, stricter norms for mobile wallets, allowing interoperability through the Unified Payments Interface (UPI) as well as issuing rules for peer-to-peer lending platforms are some of the key reforms initiated last year.

According to provisional data available with VCCEdge, the research arm of News Corp VCCircle, investors ploughed around $683 million in the fintech sector in 2018. Online lending and personal finance platforms signed the most number of deals at 43 in 2018 (versus 45 deals in 2017) and raised a total of $565 million.

In the personal loan segment, credit scoring and credit assessment have undergone a big change with the adoption of alternative assessment parameters and new-age technologies like artificial intelligence and machine learning and re-inforcement learning (RL).

The Indian fintech sector is about a decade-old and started with the likes of PolicyBazaar and BankBazaar. However, the sector attained maturity over the last five years, with around 80% of the fintech companies having formed during the period.

Besides the advent of UPI, the mushrooming of online lenders has provided a much-needed boost to the payments and lending sector. The country is also being seen as a test bed for new-age fintech innovations by companies such as Amazon, which have developed many India-centric solutions.