Innovative fintech products are fast-becoming the lifeblood of global economic prosperity. Fresh and exciting developments have the power to expand financial inclusion across developing economies, unlock new sources of funding for businesses and help individuals to better understand how they buy, spend and invest. Yet it’s worth pointing out not every pie-in-the-sky fintech concept ends up bearing fruit – and some can even lead down a rocky road to disaster.
That’s why governments across key jurisdictions have launched safe spaces firms can utilise to test new services, products or business models without exposing themselves or customers to serious financial risk. These regulatory sandboxes see government bodies work closely with cohorts of companies to allow for experimentation under the guidance of appropriate safeguards, simultaneously helping inform new policy and reduce the time and cost of bringing edgy new fintech products to market.
Regulatory sandboxes have been sprouting up across a range of markets in recent years – from Singapore and Australia, to Hong Kong and the US. In March, the state of Arizona even launched its own sandbox, becoming America’s first subservient state government to do so. Yet as new regulatory experiments are only just beginning to prosper and grow, the UK’s tried-and-tested Project Innovate sandbox continues to be a global leader.
A deeper look at the programme could yield quite a few lessons for other regulators looking to jump on the bandwagon – particularly in the wake of this week’s announcement that 11 financial regulators are teaming up to establish the first-ever “global sandbox”.
Launched by the UK’s Financial Conduct Authority (FCA) in 2016, Britain’s fintech sandbox was the world’s first. It was created as part of the FCA’s strategy to bolster financial competition, and recently announced its fourth cohort of participating firms – bringing the number of companies using the sandbox up to 89 over the last two years.
The success rate of those cohorts and their fintech experiments has been staggering. Around 90% of companies involved in the sandbox’s first cohort have since continued toward a wider market launch.
Over its four cohorts, the FCA sandbox has welcomed both scrappy start-ups and global incumbents like Natwest, Barclays and HSBC – and the vast majority of firms have been using the sandbox to push the current limits of distributed ledger technology.
For example, DISC Holdings used the sandbox to help the UK’s Department for Work and Pensions (DWP) pilot a blockchain-supported payments scheme dubbed “GovCoin”, which is designed to instantly credit value directly to a claimant’s smartphone.
Web-based estate agents Nested tested an interest-free loan product for a guaranteed amount available to customers unable to sell their home within 90 days of placing it on the market – and London-based start-up Meet Mia has even joined the FCA’s forth cohort to test a Facebook Messenger chatbot capable of using the social media platform to sell travel insurance.
With any luck, those successes and the FCA’s breadth of experience will help to inform and guide the brand-new Global Financial Innovation Network sandbox – which will not only enable firms to test their new ideas in a safe and controlled environment, but also allow start-ups to streamline their ability scale across borders and better navigate contrasting regulatory environments.
In order to guide the development of the world’s first global sandbox, the FCA and other participating regulatory bodies have called on fintechs, investors, governments and other interested parties to participate in a consultation project in the coming months to help identify network objectives and processes.