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’.

A ‘regulatory sandbox’ refers to the testing of new products or services in a controlled environment where the regulator may permit certain relaxations for the testing.

The RBI believes that the regulatory sandbox allows all stakeholders — including the regulator, the innovator, the operator, and the final user of the technology — to conduct field tests.

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 (Bahwan Cybertech 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 (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 entities have been permitted to test their fintech products from February 2023.

(The writer is a lawyer at IndusLaw, a law firm)