RBI “sandbox” tests for fraud-proof fintech

On Jan. 5, the Reserve Bank of India invited applications for the testing phase of the fourth cohort of its “regulatory sandbox.” The topic is “Prevention and Reduction of Financial Fraud”.

A “regulatory sandbox” refers to testing new products or services in a controlled environment where the regulator can allow certain relaxations for testing.

RBI believes that the regulatory sandbox allows all stakeholders – including the regulator, the innovator, the operator and the end user of the technology – to conduct field testing.

For this regulatory sandbox, RBI received nine applications, of which six were selected to test the following products: (i) a comprehensive monitoring mechanism to continuously monitor credit account transactions and events in real-time (Bahwan Cybertech Pvt Ltd); (ii) an early warning system for credit monitoring and fraud detection (Crediwatch Information Analytics Pvt Ltd); (iii) risk-based authentication solution for smooth (no one-time password) low-value transactions (enStage Software Pvt Ltd – Wibmo); (iv) Artificial Intelligence/Machine Learning based closed user group solution for card absent fraud detection (HSBC in collaboration with Wibmo); (v) lock the login form, payment form, ATM and pay stations and allow only the authorized user to initiate transactions using credentials via the napID Zero Factor Authenticator App (napID Cybersec 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).

The companies will be allowed to test their fintech products from February 2023.

(The author is an attorney at IndusLaw, a law firm)