Regulatory Sandboxes as Catalysts for Fintech Innovation: Evidence from India’s Emerging Digital Financial Ecosystem

Abstract

The fintech ecosystem in India has experienced unprecedented growth over the past decade, driven by digital payment platforms, mobile banking innovations, and policy-enabled financial technologies. Regulatory frameworks, particularly regulatory sandboxes, have emerged as critical instruments to foster innovation while maintaining financial stability and consumer protection. This study examines the role of regulatory sandboxes in promoting fintech innovation in India, focusing on digital payments, digital lending, and other emerging financial services. Using a qualitative-dominant mixed-method approach, the research analyzes policy documents, RBI and SEBI circulars, NPCI reports, and expert interviews to assess the sandbox’s impact on innovation, adoption, and financial inclusion. Findings indicate that sandboxes facilitate market experimentation, risk mitigation, and knowledge sharing, leading to faster product development and increased adoption of digital financial services. However, challenges remain in scaling innovations, ensuring equitable access, and managing regulatory complexities. The study contributes to the understanding of policy-driven innovation ecosystems in emerging markets, providing insights for regulators, fintech firms, and policymakers seeking to balance innovation promotion with systemic risk management.