Insights
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Fintech sandbox in banking sector Sandbox is used to create experimental legal frameworks for innovative new products, services or business models for which the current legal framework has not yet regulated or has some shortcomings. An experimental legal framework It was not until 2016 that the world saw the creation of the first regulatory sandboxes—frameworks set up by regulators that allow fintech startups to conduct live experiments in a controlled environment under a regulator’s supervision. In only four years, sandboxes have become synonymous with fintech innovation, offering the unique benefit of providing the empirical evidence needed to substantiate decisions in the field. According to the World Bank, sandboxes are usually classified into four types, based on their objectives: (i) policy-focused; (ii) product or innovation focused; (iii) thematic; and (iv) cross-border. These categories are not mutually exclusive, however. Policy-focused sandboxes: These sandboxes use the sandbox process to evaluate particular regulations or policies. Innovation- or product-focused sandboxes: These sandboxes encourage innovation by lowering the cost of entering the regulated marketplace, allowing firms to test the market viability of new business models.
Thematic sandboxes: Sandboxes of this type focus on a precise theme with the objective of accelerating adoption of a specific policy or innovation or supporting development of a particular subsector or even of specific products aimed at particular population segments. Cross-border sandboxes: Cross-border or multijurisdictional sandboxes support firms’ cross-border movement and operations while encouraging regulator cooperation and reducing arbitrage.
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Objectives for these sandboxes include improving cross-border regulatory harmonization and fintech firms’ ability to scale more rapidly on a regional or global basis. In fact, a multiplicity of actors across the innovation ecosystem take part in the regulatory sandboxes, including: Innovators and knowledge providers: This group includes people with innovative products, technologies, services or business models who want to test them in a sandbox. They can be
