On-Tap Sandbox

An On-Tap Sandbox is a regulatory innovation framework that allows eligible entities to test new financial products, services or technologies on a continuous, application-based basis, rather than within fixed cohorts or limited time windows. In the context of banking, finance and the Indian economy, the On-Tap Sandbox represents a shift towards more flexible, responsive and innovation-friendly regulation, enabling faster experimentation while maintaining regulatory oversight and consumer protection.
The concept is particularly relevant in a rapidly evolving financial ecosystem where fintech innovation, digital banking and data-driven services are advancing faster than traditional regulatory cycles.

Concept and Evolution of the On-Tap Sandbox

A regulatory sandbox is a controlled environment in which innovators can test new solutions with real users under relaxed regulatory requirements and close supervision. The On-Tap Sandbox builds on this idea by removing batch-based entry and allowing applications to be submitted and evaluated on an ongoing basis.
This evolution addresses a key limitation of earlier sandbox models, where innovators had to wait for specific application windows and thematic cohorts. The On-Tap approach aligns regulation with the pace of innovation, allowing timely testing of market-ready solutions.

Regulatory Framework in India

In India, the On-Tap Sandbox is administered by the Reserve Bank of India as part of its broader regulatory sandbox framework. The central bank introduced the On-Tap facility to provide continuous access to sandbox testing, subject to eligibility criteria, risk assessment and regulatory safeguards.
Applicants typically include banks, non-banking financial companies, fintech firms and technology service providers proposing innovations in areas such as digital payments, lending, regtech, suptech and financial inclusion.

Key Features of the On-Tap Sandbox

The On-Tap Sandbox is characterised by flexibility, proportional regulation and real-world testing. Unlike cohort-based sandboxes, it does not restrict applications to predefined themes or timelines.
Core features include:

• Continuous application and evaluation process
• Limited-scale testing with real customers
• Relaxation of specific regulatory requirements on a case-by-case basis
• Defined testing duration and exit criteria
• Close monitoring and reporting obligations

These features ensure innovation is encouraged without compromising financial stability or consumer interests.

Role in Banking Innovation

For banks, the On-Tap Sandbox provides a structured pathway to test new digital products and process innovations without immediately bearing full regulatory compliance costs. This is particularly useful for experimenting with emerging technologies such as artificial intelligence-based credit scoring, alternative data usage and new customer onboarding models.
Banks can validate feasibility, customer acceptance and risk implications before full-scale deployment, reducing uncertainty and innovation risk. The sandbox also promotes collaboration between banks and fintech firms.

Importance for the Financial Sector

Across the broader financial sector, the On-Tap Sandbox lowers entry barriers for innovative firms and supports competition. Fintech companies, which may lack the resources to navigate complex regulatory approvals upfront, can demonstrate the value and safety of their solutions through controlled testing.
The sandbox promotes:

• Faster time-to-market for innovative solutions
• Evidence-based regulatory decision-making
• Competitive neutrality between incumbents and new entrants
• Development of scalable, compliant financial products

This contributes to a more dynamic and resilient financial ecosystem.

Contribution to Financial Inclusion

The On-Tap Sandbox has particular relevance for financial inclusion in India. Many innovations aim to serve underserved populations through low-cost digital delivery, alternative credit assessment and simplified financial products.
By enabling controlled testing of inclusion-focused solutions, the sandbox helps ensure that new products are both effective and safe for vulnerable users. Successful pilots can then be scaled nationally, expanding access to formal financial services.

Impact on the Indian Economy

At the macroeconomic level, the On-Tap Sandbox supports innovation-led growth in the financial sector. A more innovative banking and financial system improves efficiency, reduces costs and enhances access to credit and payments.
Economic benefits include:

• Acceleration of fintech-led growth and employment
• Improved efficiency of financial intermediation
• Support for digital transformation of the economy
• Strengthening India’s position as a global fintech hub

By aligning regulation with innovation, the sandbox framework supports sustainable economic development.

Risk Management and Consumer Protection

Despite its flexibility, the On-Tap Sandbox is designed with strong safeguards. Participants are subject to limits on customer exposure, transaction volumes and testing duration. Clear disclosure requirements ensure that customers are aware they are part of a sandbox experiment.
Regulators closely monitor risks related to data privacy, cybersecurity, consumer harm and systemic impact. If risks materialise, testing can be suspended or terminated. This risk-based oversight preserves trust in the financial system.

Relationship with Policy and Regulation

The On-Tap Sandbox also serves as a learning tool for regulators. Insights gained from sandbox experiments inform future regulations, guidelines and supervisory approaches. This iterative feedback loop enables evidence-based policymaking and reduces regulatory uncertainty.
Over time, successful sandbox outcomes can lead to permanent regulatory changes that accommodate innovation while maintaining prudential standards.