No connection to the internet for online payments? There’s a fix thanks to the RBI Sandbox.

Some people are so used to making payments through UPI that they no longer carry cash. Due to unreliable Internet connections, transactions may not be processed as required. So, you might soon no longer find yourself in a situation where bad networks are your worst nightmare. HDFC Bank launched a test programme for offline payments on February 13th. Yes, you can use your mobile device to make payments of up to 200 rupees without an internet connection. In most cases, these offline payment methods can be a lifesaver when you're in a region with a spotty network connection.

So, how will offline payment work?

So, you place up to 150 rupees in a special wallet that can contain up to that amount. And when you're ready to make a payment, simply launch the app, which will function offline. Scan a QR code to see the wallet's funds being depleted. Even if the merchant lacks a network, that is acceptable. Because when the payment is processed, a QR code is generated. The merchant can scan this code using their offline payment app as evidence of payment, despite their offline status. The transaction is completed once you or the merchant enter the internet range. Because HDFC's statement says, "Typically, either the customer or the merchant must be online for a digital payment to be processed." The goal of the pilot is to make sure that a transaction can happen even if both the client and the merchant are not online. In any case, despite the fact that offline payment sounds ideal, it has its fair share of flaws. For example, everyone participating in the transaction must have the offline payment application. Moreover, you cannot replenish your wallet when you are offline. Hence, if you are in an area with limited Internet access and make payments, you may quickly deplete your funds. The issue is that this is not a full-scale launch. It is a four-month trial period for select consumers in 16 Indian cities (and towns).

In reality, HDFC Bank conceived this concept within the RBI's Regulatory Sandbox (RS).

Now, what is a Regulatory Sandbox (RS)?

Consider it a distinct, fenced-in region where companies can test their ideas. They can test out new technologies. and introduce novel products. All of this is regulated by an agency like the RBI for banks, the IRDAI for insurance, or the SEBI for capital markets.

So, a question arises: "Why on earth do we need sandboxes?" 

Consider the following: From a regulatory perspective, you should collaborate with innovative enterprises. You do not want them to discover a loophole and introduce a product. Then people will blame you, saying that you were sleeping and that rules are always out of date. By telling businesses, "Hey, let's collaborate and figure out how we can innovate together," regulators may be at the forefront of advances. It's all in real time. You are not required to distribute consultation documents and solicit opinions from everyone. You can do a live experiment, watch how the pilot goes, and decide if the rules need to be changed to make things easier or get rid of a big risk.

This is also a major concern for businesses. Before a company can make a new financial product, regulators often put in place a number of rules, such as a minimum net worth, a track record, and experience in management. All of this might, however, be accomplished in a sandpit. With a valid idea, a startup can obtain an exemption and develop outstanding items.

And since the product is only released to a restricted group of individuals who are aware of the risks, the company's reputation will not be affected if something goes wrong. comparable to how we patch-test new skin care products to determine their safety.

It also reduces expenses. If a fintech chooses to test its product with a select group within the RBI sandpit, it does not need to spend a fortune on costly rollouts. In short order, everyone will know whether or not there is "product-market fit."

So, thanks to the RBI's regulatory sandbox, "offline digital payments" may soon be available. It has enabled a traditional bank such as HDFC to develop alongside fintechs. With the Reserve Bank of India setting up many groups in the sandbox to work on retail payments, cross-border payments, and preventing financial fraud, you can be sure that this kind of innovation will continue. India has more than 6,000 fintech businesses, which could help the financial services industry in a big way. The same goes for us as users.

Click on the link for further reading about the RBI Sandbox.

Regulatory Sandbox - FinTech (rbi.org.in)