RBI’s ‘sandbox’ tests for fraud-proof fintech

Subject: Economy

Section: Monetary Policy

Context: RBI picks fintech’s to test ways of preventing, mitigating financial fraud

What’s the news?

On January 5, the Reserve Bank of India called for applications for the testing phase of the fourth cohort of its ‘regulatory sandbox’. The theme is ‘prevention and mitigation of financial fraud’.
For this regulatory sandbox, the RBI received nine applications, of which six were selected for testing the following products: (i) a comprehensive surveillance mechanism for monitoring transactions and events from loan accounts on a continuous and real-time basis (BahwanCybertech Pvt Ltd); (ii) an early warning system for credit monitoring and fraud identification (Crediwatch Information Analytics Pvt Ltd); (iii) risk-based authentication solution for frictionless (without one-time password) low-value transactions (enStage Software Pvt Ltd — Wibmo); (iv) closed user group artificial intelligence/machine learning based solution for card-not-present fraud detection (HSBC in collaboration with Wibmo); (v) lock the login form, payment form, ATM, and point-of-sale machines, and enable it only for the authorised user to initiate transaction using credentials via napID zero-factor authenticator app (napIDCybersec Pvt Ltd); and (vi) address verification by running proprietary AI algorithms on non-personally identifiable data such as subscriber usage and location signals (Trusting Social Pvt Ltd).

What is regulatory sandbox?

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

Why it is needed?

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.
The objective of the regulatory sandbox is to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.