Of all the eccentricities that Brian Wilson, musical genius and co-founder of the Beach Boys, is famous for, perhaps one of the most brilliant was having a sandbox – complete with a grand piano in the middle of it – installed in his dining room. He did this in the hope that, feeling like a kid again with the sand under his feet, it would aid in his creativity. After all, when you’re a kid, there’s nothing quite like a place that’s semi-separated from reality where you’re free to build, dig, explore, and let your imagination go. Unfortunately, being an “adult” often means giving up imagination for reality and possibility for convention, but there’s a funny thing about the freedom of imagination and creativity – it leads to innovation. So, let’s take a look at one of the newest and most innovative places on the adult playground, the fintech sandbox.
Before we start building sandcastles, let’s take a closer look at the term itself. A portmanteau of the phrase “financial technology”, fintech combines the word financial, which comes from the Old French finance, meaning ‘to end, payment, or settlement of a debt’, and the word technology, which comes from the Greek tekhnologia, meaning ‘systematic treatment of an art, craft, or technique’. Encompassing all technology which is used to improve the accessibility, speed, reliability, and overall useability of financial services, fintech was originally coined in 1971 and has seen a boom in usage in the Information Age. As for the second word, sandbox – coming from the combining of the Old English sand and box – though it was initially used in the 1572 as a literal box of sand to blot wet ink on manuscripts, the use as a place in a park filled with sand and surrounded by low barriers for children to play can, interestingly, first be found in the 1937 work Social Behavior and Child Personality by American developmental psychologist Lois Barclay Murphy, writing: “Agatha said, ‘Want to play in the sand box, Theodore, huh? Do you?’” Moreover, in the concept of creating or attempting to try/utilize something, the first use of the term to denote a secure place where something can be tested, such as software or code, appears relative to computer science in late 1993 at the Proceedings of the 14th ACM Symposium on Operating systems Principles, where it was recorded that: “We introduce a technique, called sandboxing, that can isolate a distrusted module while only slightly increasing its execution time.”
In order to understand what a fintech sandbox is and why it is conceptually necessary, we need to examine the current systemic problems we’re facing. We live in a world of massive change, from Uber, Paypal, and Venmo to blockchain, cryptocurrency, and smart contracts; however, the regulations used to govern these business activities either don’t exist, are too old to reflect the modern business environment, or fall under multiple regulatory departments. With either a lack of, ambiguity in, or (in some cases) excessive regulatory oversight, financial companies behave extremely cautiously, meaning that the traditional route for financial service innovation is long, costly, and time-consuming – in other words, stifled. What a fintech sandbox does is (within reasonable measures and risk) allow financial companies a compartmentalised area with which they can experiment with new products and services without excessive regulation, ideally giving fintech more opportunities for innovation, creating more and better services for the bank/financial services provider, and providing more tailored services for individual consumers.
Currently, fintech sandbox programs exist in the UK, which has the distinction of being the first country to launch a sandbox program in 2016, at least 27 other countries, and several US states. From products seeking to afford cryptocurrency investors the same products available to traditional investors, to algorithms and machine intelligence for loan applications, to platforms using quantitative price analytics for the sale and collection of art, there’s no telling what the sandbox can produce when companies are allowed the freedom and imagination to go digging and building in the sandbox.