RBI tests ‘On Tap’ app in sandbox for retail payments

The Reserve Bank of India (RBI) has announced the testing of the ‘On Tap’ application under the ‘Retail Payments’ theme in its regulatory sandbox. Exto India Technologies Pvt. Ltd. has been chosen for the trial phase.

The RBI’s ‘On Tap’ application under the ‘Retail Payments’ theme allows companies to test innovative payment solutions like offline mobile payments or biometric authentication in a controlled environment, offering an on-demand, flexible testing process without needing a specific application window.

RBI informed that this solution is an offline digital payment system that integrates distributed ledger technology (DLT) and private biometric authentication to facilitate offline transactions between cards and phones. The innovation leverages cryptographic techniques from distributed ledgers, biometric verification on the card, and time-bound balances to prevent double-spending.

“Under the ‘On Tap’ application facility for the theme ‘Retail Payments’ of the Regulatory Sandbox (RS), Exto India Technologies Pvt. Ltd. was selected for the test phase. The entity tested an offline digital payment product, which was evaluated based on mutually agreed scenarios and expected outcomes,” RBI said in a statement.

“The product is an offline digital payment solution which utilises Distributed Ledger Technology (DLT) in combination with private biometric authorisation to enable offline card-to-card and card-to-phone transactions. The innovation is related to use of cryptography of distributed ledgers, on-card biometric authentication and time limited balances to secure against double spend,” the statement added.

RBI said that regulated entities may consider adopting this product, provided they meet the relevant regulatory requirements.

The central bank’s regulatory sandbox is primarily aimed at fintech companies, including startups. Its goal is to encourage responsible innovation in financial services, enhance efficiency, and deliver consumer benefits. According to RBI, the proposed financial service introduced within the sandbox should involve new or emerging technologies or innovative applications of existing technology and aim to solve a problem while providing value to consumers.

In July 2016, the RBI formed an inter-regulatory Working Group (WG) to examine fintech developments and their regulatory implications. The WG’s report, released for public comment on February 8, 2018, recommended establishing a regulatory sandbox (RS) to allow live testing of financial innovations within a controlled environment, providing regulatory guidance to improve efficiency, manage risks, and create opportunities for consumers.

The RS enables testing new products and services in a controlled environment with potential regulatory relaxations, allowing regulators, innovators, financial providers, and customers to assess risks and benefits. It helps regulators develop innovation-responsive regulations to support the delivery of affordable, relevant financial products and foster dynamic, evidence-based regulatory environments.

“It can provide a structured avenue for the regulator to engage with the ecosystem and to develop innovation-enabling or innovation-responsive regulations that facilitate delivery of relevant, low-cost financial products,” RBI said.

According to an RBI article, regulatory sandboxes have been conducted since 2019 in ‘retail payments,’ ‘cross-border payments,’ ‘MSME lending,’ and ‘prevention and mitigation of financial frauds.’ The overall goal is to foster meaningful innovations and incubation in the fintech sector, considering the impact on the financial industry and markets within the central bank’s jurisdiction.

“The RBI has undertaken several initiatives to support the development of digital public infrastructure and establish robust institutional frameworks, complemented by various policy measures aimed at enhancing the financial sector,” Swaminathan Janakiraman, RBI’s deputy governor, said in September last year.

“In 2019, the RBI introduced the ‘Regulatory Sandbox’ framework to provide a controlled environment for testing new financial products, services, or business models with real customers under regulatory oversight. This initiative facilitates collaboration among regulators, innovators, and financial service providers to assess the benefits and risks of emerging technologies,” Janakiraman explained.

“Since its inception, five cohorts of the sandbox have evaluated various ideas, with some proving to be feasible. To address situations where a product or service might fall under multiple financial sector regulators, an interoperable regulatory sandbox mechanism was introduced in 2022,” he added.

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