The emergence of the World Wide Web and ensuing wireless advancements transformed the way people managed money. Financial technology, colloquially termed fintech, revolutionized banking and related industries. More than 75% of people under age 25 now use mobile banking, 93% use payment apps such as Zelle, PayPal, and Venmo, and crowdfunding platforms raised $34.4 billion between 2012 and 2025.
In 2015, the United Kingdom revolutionized fintech regulation with its regulatory sandbox model, a template that quickly spread to the United States. This regulation structure allows companies to try innovative ideas in the market in real time with specialized government oversight. This protects them from lawsuits while also protecting consumers from hazards. The following are a few advantages of sandboxes that are specific to fintech.
Democracy Of Entry
Rigid regulations professedly designed to guard consumers often instead guard industry leaders, who have the means to influence legislators. Regulatory capture restricts industry entry for new entrepreneurs with few connections, and consumers pay a price when this new talent can’t flourish.
The 1998 creation of PayPal, which forever altered the payment process landscape, could not have occurred without industry freedom and democratization. Kickstarter and other crowdfunding companies, popularized in 2009 to help borrowers post-recession, could not have bridged that era’s lending gap if regulations had been inflexible.
These kinds of innovations are postponed or captured by antiquated or overbearing laws. Fintech sandboxes allow more new players to enter the game and create more new products. In fact, this system is so useful that Cash App and other tech businesses manage their own intra-company sandbox apps.
Supporting Both Local Industry and Worldwide Trade
Although a global economy offers enormous opportunities, it only benefits all sides when the individual players can operate free from unnecessary restrictions. When U.S. regulators place roadblocks in the way of local entrepreneurs, the entrepreneurs are pressured to move their business elsewhere.
The mass exodus of tech companies from California illustrates the harm its typically heavy-handed regulation causes. Many of the fleeing business owners cited regulations as the reason for leaving. Embracing a true fintech sandbox would allow companies under that umbrella to stay more easily, benefiting them and their state.
Speed
Technology advances quickly when nothing stands in its way.
Access to study data, much of which would otherwise be inaccessible due to privacy laws, can be obtained in real time in a sandbox with participant approval. Unlike a product currently available to the entire population, a sandbox product can be studied under whatever privacy parameters the conductors and participants deem optimal for both. Observers can then identify and resolve problems in a fintech product almost immediately.
Creators can also raise capital more easily during the trial phase if they have successes to show potential investors. The feel of legitimacy inherent in a sandbox trial encourages generous funding. This slashes the time normally wasted while waiting for money at each step on the way.
Fast failure also means fast redirection. Under traditional regulations, creators must request permission to change course, sometimes effectively setting themselves back to day one. This is not necessary when regulators have been kept abreast the whole time.
Regulatory accumulation also slows overall economic growth in the U.S. by an average of 2% annually. Sandboxes can reverse this trend while also freeing entrepreneurs to hasten the production of better services.
Opportunity Cost Avoidance
Risks and costs are inherent in every innovation. However, as a Mercatus Center study notes, “There is also a risk to doing nothing, especially for those underserved by the status quo.”
Perhaps the most urgent reason to adopt sandboxes is the invisible: what could have been. The ability to move, invest, and receive money immediately and through myriad methods changes lives. Freedom for financial innovators leads to financial freedom for the beneficiaries of that new technology.