AbstractMobility is transcending the traditional notion of traveling, hurtling towards automation, IoT and MaaSamong other things. Technologies and business models are constantly evolving to keep pace with changingpreferences and solutions. However, the pertinent question is whether the current regulatory frameworkprovides an enabling environment for these innovations and technologies to create impact at scale.Accessibility, diversity, inclusion and transparency are not fully enabled under the current regulatoryapproach. Enter regulatory sandboxing! A regulatory sandbox provides a framework to live test innovationconcepts in a controlled regulatory environment. Sandboxing enables regulators to work with innovators inmitigating risks of implementing a new solution, and develop data-driven, evidence-based policies for newtechnologies. This Issue Brief presents the framework of a regulatory sandbox, its advantages, evaluating itssuccess and analyses the use of regulatory sandbox for mobility innovations. As Indian cities arrive at the cuspof a mobility revolution, regulatory sandboxing could potentially determine the way forward in enablinginnovation.

Introduction

The world is in the midst of a rapid technological evolution disrupting and redefining the way we live. Thechange is primarily driven by advances in artificial intelligence, robotics, the internet of things (IoT) andcomputing at an unprecedented scale and pace. Closer home in India, the past decade saw startups - poweredby India’s greatest asset, i.e. human capital - catapulting the country to a leading global hub of innovation,securing India’s ambition as outlined in its national strategy, “Decade of Innovation (2010-2020)”[1,2]. WhileIndia’s talent is comparable to global standards, its full potential can be realised only through the creation ofenabling ecosystems especially from a policy and regulatory perspective. The current approach topolicymaking, involving any new technology or revenue model, is reactive[3], coming under the government’sfocus only when it reaches a certain threshold of users and revenue. This leads to a trust deficit betweenpolicymakers and businesses, creating high regulatory risks for firms and a situation of perpetual catch-up forgovernments.

Mobility as a sector is witnessing a technological transformation. Low-emission vehicles powered by batteriesor alternative fuels, self-driving cars, air taxis, drones, etc. are shaping the future of mobility and cities. Suchinnovations generally operate in a regulatory grey area where rules are seldom clearly defined[4]. For instance,air taxis, a reality in the near future, are being developed worldwide. However, regulations surrounding theiroperations are opaque and require careful assessments. In India, mobility policies favour the electrification of allmodes of people and goods movement, while restricting shared mobility such as bike taxi operations.On-demand bus services are often penalised for operating "illegally", since it is the state that operates publictransit[5]. This differentiated approach is due to the limited availability of information and evidence on thepotential economic and social impact of new business models or innovations.

An efficient and robust innovative ecosystem is necessary to harness new mobility services, capable ofproviding a more accessible and inclusive transport system[6]. India’s potential to emerge as a global leader inmobility necessitates the enablement of innovations through favourable policies, within a fixed time-frame.Governments, hence, need to act swiftly with intent, mitigate the risks involved, and measure impact of a new

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solution, thereby presenting opportunities for policymakers to work in tandem with technology and create aninnovation-friendly environment.

Enter, regulatory sandbox! Regulatory sandbox is a tool globally adopted by regulators to work with innovatorsto evaluate and develop evidence-based policy[7]. It is through this anchor that this issue brief presents theframework of a regulatory sandbox, its advantages, and evaluates its success. Further, we explore thepossibility of using a regulatory sandbox for innovations to solve urban mobility issues.

What is a regulatory sandbox?

Regulatory sandboxes are created for limited periods to live test models in a controlled environment[7]. Theleeway it provides helps innovators to experiment even when the innovations may not conform to the existinglegal framework. More importantly, it allows regulators to discover the contours of future legislation, fosteringsimilar innovation in the said domain[8].

Several countries have adopted sandboxing to achieve the twin objectives of nurturing innovation andsafeguarding consumer interest[9]. The empirical data acquired from real-time testing helps regulators makesound policy decisions. Its ‘learn by doing’ approach allows for piloting new technologies that face regulatorybarriers, as innovators and regulators work towards a favourable regulatory ecosystem[10,11].

Regulatory Sandbox Framework

Table 1: Regulatory Sandbox framework

Process ● Eligibility: Criteria for participation broadly covers genuineness of innovation, direct benefitsto consumers, no risk to the sector and testing readiness of the product.

● Application: Firms apply to the regulatory body describing their business model for approval.● Authorisation: The authorisation is granted after laying out the business plan and the

relaxations with which the products can be tested.● Testing: Firms identify their customer base to live test their product. A significant degree of

freedom is allowed in designing and amending test plans during the course of testing.● Exit: At the end of the test period, firms need to transition out of the sandbox. The test results

determine whether the product is authorised for service at scale.

Stakeholders ● Core Stakeholders: Government, Regulatory Authorities, Businesses● Others: Consumers, Civil Society, Market Forces

Time Frame ● The duration depends on a case to case basis, generally lasting between 3 and 12 months, withprovisions for extensions.

Post-sandboxing ● Regulators either recommend the product to operate at scale if it meets all the legal andregulatory requirements or declare that the operator is not to be recommended to proceed forlicensing.

Impact ● Provides regulatory exemptions● Reduces uncertainties and risks, catalysing innovation● A continuous feedback loop helps fine-tune business model and develop enabling policies

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Application ● Business models & innovations falling outside the purview of existing law● Products with substantial customer benefit

Advantages

Regulatory uncertainty hinders investment. Sandboxes encourage positive dialogue between regulators andinnovators on emerging technologies, spurring innovation and investment that benefit all stakeholders alike.

Table 2: Regulatory Sandboxing Advantages

Live Testing Innovators can live test the viability of new technologies in a cost effective manner.

Cohesive Environment A regulatory sandbox aids stakeholders to communicate easily, helping develop betterservices.

Risk mitigation Regulatory risks and unforeseen complications are mitigated through a continuousfeedback loop.

Foster innovation andattract investment

A conducive environment to pilot new innovations helps countries position themselvesbetter to attract investments.

ContinuousDevelopment

The testing phase allows for continuous modifications to test plans and models to betterdevelop products.

Aids policy making The real-time evidence helps in assessing the risks and potential benefits of technologywhich are subsequently addressed through necessary policy changes.

The potential benefits of the regulatory sandbox has prompted several countries to adopt this approach,sending a signal to the market that governments want to promote and attract innovation and top talent fromacross the globe.

Areas of application

Traditionally, regulatory sandboxes were developed for fintech services. However, other sectors like energy,urban development and telecom too are leveraging sandboxing to usher in innovations. Indeed, sandboxapplications range from testing of digital payments, and enhancing grid management and energy storage, todeploying smart city and smart mobility technologies in a controlled fashion, among others, as illustrated inTable 3.

Does the regulatory sandbox approach work?

Policymakers are increasingly focusing on regulating the digital economy driven by innovation and data. Itslarge-scale impact in sectors such as mobility, healthcare, defence, space, etc., necessitates governmentintervention. The sandbox approach adopts a touch of openness by regulatory authorities reducing theuncertainty that is atypical to tech-oriented sectors. When this is complimented with transparency anddialogue with market actors, regulatory sandboxes become even more effective. This allows regulators andinnovators to share information keeping each other in the loop[20]. An ecosystem of building trust between

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innovators and regulators and increasing regulatory certainty is thus established, making the regulatorysandbox approach a viable tool.

South Korea's Financial Services Commission (FSC) is a case in point. The FSC sandbox has attracted overUS$111 million in investments for start-ups and expanded the country's blockchain technologies and fintechservices since its inception in 2019[21]. Colombia too introduced a sandbox in financial services for promotinginnovation and technological transformation in the financial, securities and insurance market. Four projects arenow successfully operating at scale[22].

Sandboxing experiments are unique to each country, and the frameworks are difficult to replicate elsewhere.They are useful when used and set up appropriately within the local context. A simple approach factoringmarket reception and resources, can contribute to the success and overall impact of a sandbox[23]. Althoughmany sandboxes have achieved some degree of success, others have faced bottlenecks failing to attract firmsto participate. The most common determining factors are presented below.

● Multiple regulators with overlapping jurisdiction requires meticulous coordination[24]. When multiplesandboxes are applied appropriately with coordination, they have shown promise of creating anenabling environment for innovators. Hong Kong, for instance, has three regulators each having asandbox - interlinked with the other two - to provide a single point of entry for testing cross-sectorfintech products[25]. In such cases the lead authority tests the product in its sandbox while coordinatingand communicating the results to the other regulators[24]. Hong Kong has enforced an MoU amongthese different regulators making coordination and communication of results accessible andefficient[24].

● Feasibility assessments: Information on the legality, resources and vitality of data of the marketecosystem, help in assessing the need for a regulatory sandbox. The Australian Securities andInvestment Commission (ASIC)’s regulatory sandbox saw limited participation due to its restrictiveparameters[24]. The ASIC took measures to reform the sandbox by increasing the trial duration,provisioning for exemptions during trial and broadening the category of products and services. Theassessment of the first regulatory sandbox helped ASIC to respond to market demands and also adaptto regulators changing needs[24].

● Resource-intensive: Developing and operating a sandbox is expensive. The two common governancemodels, i.e. a dedicated unit or a hub and spoke model for a sandbox, vary in cost and efficiency[24].Governments must carefully evaluate both models. A recent survey by the World Bank estimates thatrunning a regulatory sandbox could cost anywhere between US$25,000 - $1 million[26]. The significantvariance is dependent on the model adopted to run the sandbox.

● Thematic sandboxes are effective in encouraging particular technologies or products to enter themarket. They provide impetus toward certain policy priorities. For example, the Reserve Bank of India(RBI) has a thematic approach to pursue specific policy objectives of mobile payments and contactlesspayment solutions while implementing a fintech sandboxs[24].

● Market forces and the ecosystem must be conducive for implementing innovation at scale. For lessmature markets, with only a few takers for a regulatory sandbox approach, other viable options such asa test-and-learn approach or innovation hubs can be explored[24]. For example, the Philippines Central

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Bank has adopted a test and learn approach to spur innovation within the financial sector[28]. TheCentral Bank permitted telecommunication firms to test new models of delivering financial servicesthrough non-bank entities that later were adopted and operated at scale[24].

Indeed, a regulatory sandbox is established keeping several factors in mind with the market and regulatorsplaying a crucial role in determining its types. However, the flexibility of regulatory sandboxes and their ease ofapplication across sectors make them attractive to regulators.

Table 3: Evidence of Regulatory Sandbox Success in Non-Mobility Industries

Country Regulator Sector Application

Singapore

MonetaryAuthority of

Singapore (MAS)-Central bank

Capital marketplatform

● iSTOX, a capital market blockchain platform, tested itsdistributed ledger technology (DLT) to feature integratedissuance, custody and trading of digitised securities[29].

● Provides a flexible, inclusive and efficient platformbenefitting both companies and investors[29].

● iSTOX has been permitted to begin operations at scale[29] .

BahrainCentral Bank of

Bahrain(CBB)

Crypto tradingandcrowdfunding

● Startups and FinTech firms test crypto-assets, payments,remittance for both conventional and Sharia-compliantservices.

● Two FinTech companies, Tarabut and Rain, have beengranted license to operate at scale[30].

UKOffice of gas andElectricity Market

Power sector

● Test peer-to-peer local energy trading platform that allowsresidents to source their energy from local renewables andtrade it with their neighbours using blockchaintechnologies[41].

SierraLeone

Bank of SierraLeone (BSL)-Central Bank

Banking

● BSL initiated a regulatory sandbox to encourage, cultivate,and promote financial innovation[31].

● Services tested include mobile payments, a mobile moneycash transfer application for agriculturalists, a financialliteracy mobile application, and an electronic money transferplatform[31].

GermanyFederal Ministry of

Economic affairsand Energy

Energy● “Smart Energy Showcases- Digital Agenda for energy

transition” (SINTEG) program to test for a secure, efficientand environmentally compatible energy supply[13].

ColumbiaMinistry of

InformationTechnologies andCommunication

Telecom

● Testing of equipment, spectrum allocations, network andsystems to adopt 5G technology[15]

● Colombia is exploring more flexible allocation of spectrum,such as shared use and the secondary market{16}

SouthKorea

Ministry of Land,Infrastructure, and

Transport

UrbanDevelopment

● Using sandboxes in the areas of personal data usage, privatenetwork and land use for its smart city project.[14]

● Testing includes allowing developers to enter privatecontracts for the land sale to companies.

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The various models of sandboxes existing in highly regulated sectors such as finance, banking, and power holdenormous benefits for consumers. These “safe spaces” to test technology through a sandbox have caught theattention of other sectors, especially the mobility industry, where major transformation and innovation isexpected to take place in the coming decade.

Table 4: Evidence of Regulatory Sandbox Success in Mobility Industry

Country Regulator Sector Service/ Model

Korea

Ministry of Land,Infrastructure,and Transport

Ride-hailing

In Korea ride-hailing services can only be offered by licensedtaxi. Reservation platforms can test ride-hailing usingRegulatory Sandbox to provide[32]

● Flexible rating systems for reserved taxis● Late-night taxi-sharing service● Predetermined fare● Easy access without denying rides

Japan

Ministry ofEconomics,Trade and

Investment

E-bike

● Japanese traffic laws are unclear where and how hybridbikes should operate in its different modes.

● Through regulatory sandboxing, Glafit, an e-bikemanufacturer, demonstrated where e-bikes couldoperate in multiple settings while the government andcompany collect and use data to create newregulations[33].

Germany

Federal Ministryof Economics

and Technology

HamburgElectric

AutonomousTransportation

● Testing the viability of fully automated buses beingintegrated into road traffic[34].

SingaporeLand Transport

AuthorityAutonomous

mobility● A test area has been assigned where firms can test

Autonomous Vehicles (AVs) [27].

The commercialisation of any innovation is highly dependent on scale and time to market. Regulatory sandboxin mobility innovations is witnessing fruitful results en route to embracing new-age technologies. As countriesglobally are enabling their innovators to build for the world through a sandbox, it is time for India to adopt asimilar approach to achieve the vision of global leadership in the mobility industry.

Regulatory sandbox to promote mobility innovations in India

To appreciate the need for a regulatory sandbox approach for mobility innovations, the Indian context must bestudied. Indian cities rank amongst the worst in terms of traffic congestion. Mumbai, Bengaluru and Delhifeature in the top 10 of the most congested cities in the world[35]. City congestion is not only environmentallyhazardous but also economically regressive, costing cities like Delhi an estimated US$9.6 bn[37]. Adding to thisburgeoning burden, by 2030, India will house 600mn people in its urban centres putting immense pressure oncity infrastructure and further aggravate mobility problems[36]. Further, issues of road safety, rising number ofprivate vehicles, lack of a robust mass transit system across cities need to be urgently addressed.

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Table 5: Market Potential from key market clusters in India(value in USD billion)[42]

Clusters 2018 2030

Traditional carsharing 0.069 0.592

P2P carsharing 0.007 0.298

Corporate sharing 0 0.172

Dynamic shuttle 1.32 23.626

MaaS 0 3.356

Taxi Service 15.39 61.66

At the same time, growing economic prosperities are making consumers demand better mobility services. Asthe mobility sector is set to grow exponentially in the coming decade (see table 5), new technologies will alsosee a surge. These emerging technologies have the potential to unlock economic opportunities and set newcultural phenomena that shape and redefine the new world order. The preference for electric vehicles over ICEis a case in point. Taking a cue from countries like South Korea and Japan, India stands to gain from adoptingthe regulatory sandbox approach to test and drive mobility innovations. While the Government has put in placea regulatory sandbox for fintech services, the Karnataka government has taken the lead in setting up a sectoragnostic regulatory sandbox allowing startups from any field to apply for testing their innovations[38] - a modelto be replicated by other states in the adoption of new technologies and fostering innovation.

Potential Areas of Application

India is poised for a transformation in the mobility sector, and new technologies and business models mustharness the opportunities created through a regulatory sandbox. A few avenues having the potential to act as agateway to the future of India's mobility are listed below.

- Micro-mobility & non-motorised transport (NMT): Micro-mobility and NMT have the potential to addressIndia’s first mile- last mile conundrum. However, the policies surrounding micro-mobility limit its usage. Apilot project through a regulatory sandbox- focusing on space, right of way, size, speed etc.- can better helpidentify the benefits and challenges of micro-mobility and NMT, and help governments formulate betterpolicies surrounding micro-mobility and NMT.

- Mobility as a Service (MaaS): MaaS shifts transportation solutions to an on-demand service and onto a singleplatform. It offers a personalised and streamlined mode of transport while addressing first and last mileconnectivity issues. However, the challenges of users' perspectives, business model, enabling policy, and thecomplexity of integrating the various modes of mobility services require careful assessment and piloting,which a regulatory sandbox can address.

- Road safety: Road safety is of paramount concern when it comes to mobility. The advent of technologyinnovation to improve road safety such as smart traffic control, connected vehicles etc. can transform roadspace into a safe and risk-free environment. Such technologies can be live-tested to unleash their potentialbenefits and conform to regulations through a sandbox, before operating at scale.

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- Smart bus systems: Optimising bus systems by improving the service rendered to a population largelydependent on mass transit is essential. A smart bus system can help manage resources, maintenance andtransport information, and optimise routes[39]. A regulatory sandbox allows testing smart bus systems toimplement efficient public bus service at scale instead of policy experiments with limited success such as theBus Rapid Transit System (BRTS) in New Delhi.

- Micro transit: Micro transit services help expand the reach of public transit in cities. The absence of acomprehensive policy, differing regulatory approaches at the State level, and lack of infrastructure make itexcruciatingly difficult for these micro transit models like mini buses to transition into successful ventures atscale. On-demand, technology enabled micro transit systems are yet to be widely legally accepted. Aregulatory sandbox approach can effect a change in policy outlook.

- Vehicle sharing: Currently, India’s regulatory framework does not permit sharing and renting of privatevehicles[40]. The peer-to-peer (P2P) vehicle sharing and rental segments canenable millions of Indian citizensto access a vehicle anytime on an as-needed basis. This also creates earning opportunities for vehicleowners[40]. Testing the regulatory compliance through a sandbox can unlock the potential benefits of vehiclesharing.

- Air Taxis: An air taxi service could be offered on-demand with a network of landing or take-off hubs across acity. With many business centres on the rise, air taxis could be the solution to bridge time and space. Aregulatory sandbox offers a platform to test air taxi services, ensure safety, and evaluate the policiessurrounding urban aerial mobility.

- Drone delivery: Drone services are multi-faceted, from the ability to connect remote areas to delivery ofcritical military or medical supplies and transporting life-saving organs. Testing these services through asandbox can help the government better utilise drone services and understand the need for revising existingrules on commercial drone aviation.

- Autonomous Vehicles: Fully automated vehicles may not be viable on Indian roads, however, other use casessuch as automated bus corridors can be tested through a sandbox for smart transit systems. Autonomousvehicles also have the potential to bridge the accessibility gap and give persons with disabilities apersonalised mode of transport. Such innovative solutions must be tested in the background of the benefitsthey offer.

Mobility innovations operate in regulatory grey areas but have substantial benefits to offer. These emergingtechnologies can benefit from a regulatory sandbox and be adopted with caution satisfying the legislativerequirements.

Conclusion

Regulatory sandbox encourages the concept of ‘learn by doing’, enabling regulators to get valuable informationto make policy changes while assessing potential benefits. Since the focus is on outcomes rather than theprocess, it allows innovators and regulators to look beyond policy roadblocks and unlock benefits on a largerscale. Firms are given a free hand to experiment during the live testing phase and bring out the best version ofthe product through a feedback loop. Regulatory sandboxes have gone past the traditional usage in fintech

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services. Sectors like energy, telecom, urban development etc have adopted the sandbox approach to fosterand inculcate an ecosystem of innovation to find new solutions to the growing needs of consumers.

Citizens are on the lookout for more services and choices on how they travel, work and live. The mobility sectorwith its slew of innovations offers scalable solutions. This intersection of opportunity and expectation,however, has varying degrees of uncertainty. As disruptive technologies pose certain threats, it is critical toengage with all stakeholders to ensure that emerging mobility technologies and services are in adherence tothe law and in public interest. Regulators through a sandbox can mitigate these risks by crafting policies,establishing protocols, in collaboration with companies, to create new mobility innovations, thereby acting ascatalysts to shape the future mobility ecosystem.

For India, the growth of the mobility sector is key to her ambition towards a US$5 trillion economy. Access toaffordable, safe and sustainable mobility will help unlock new economic and employment opportunities.Governments need to embrace newer technologies and business models at a rapid pace to enable blitzscalingand capturing world market share for local companies. The regulatory sandbox is a tool that will help bridge thegap between innovation, policy and time to market, thereby driving an entire new mobility ecosystem that canbe built in India, for the world.

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38. The Financial Express. (2020, October 3). Learn from Karnataka: Its sector-agnostic sandboxing Bill promises to benefitinnovation. Financial Express.https://www.financialexpress.com/opinion/learn-from-karnataka-its-sector-agnostic-sandboxing-bill-promises-to-benefit-innovation/2096875/

39. NEC. (2018). Smart City Ahmedabad gets IoT-driven buses. https://in.nec.com/en_IN/en/case/scadl/pdf/brochure.pdf40.Srivastava, S. (2020, February 19). Is India ready for ‘peer to peer car rental’ segment?

https://www.orfonline.org/expert-speak/is-india-ready-for-peer-to-peer-car-rental-segment-61568/41. UCL Energy Institute. (n.d.). France and UK are well- positioned to learn from each other on self-consumption and

peer-to-peer energy trading.https://www.ucl.ac.uk/grand-challenges/sites/grand-challenges/files/181101_ucl-sorbonne_p2p_energy_policy_briefing_uk_version.pdf

42.Narasimhan, T. E. (2019, October 16). India's new mobility market expected to touch $90 bn by 2030: Data. BusinessStandard.https://www.business-standard.com/article/companies/india-s-new-mobility-market-expected-to-touch-90-bn-by-2030-data-119101500156_1.html

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Ola Mobility Institute (OMI) is the policy research and social innovation think-tank of Ola, focused ondeveloping knowledge frameworks at the intersection of mobility innovation and public good. The Instituteconcerns itself with public research on electric mobility, energy and mobility, urban mobility, accessibility andinclusion, and future of work and platform economy. All research conducted at OMI is funded by ANITechnologies Pvt. Ltd. (the parent company of brand Ola).

www.ola.institute mobilityinstitute@olacabs.com

https://twitter.com/OlaMobilityInst https://medium.com/@mobilityinstitute

Author:

Anish MichaelAnish is a Research Intern at OMI. He holds a Masters in Public Policy (MPP) from Jindal School of Government andPublic Policy.

Contributors: Aishwarya Raman, Yeshwanth Reddy, and Snehil Singh

Cover Image: Photos by Christian Lambert, Kande Bonfim, Lets Kick on Unsplash and Freepik

Suggested Citation: Michael, A. 2021. Bridging policy and innovation: Using regulatory sandbox to drive newmobility innovations. Ola Mobility Institute.

Disclaimer: Neither Ola, Ola Mobility Institute nor any party associated with this report will be liable for anyloss or damage incurred by the use of this Issue Brief.

© Ola Mobility Institute. Copyright 2021 Ola Mobility Institute.

This work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of thislicense, visit http://creativecommons.org/licenses/by/4.0.

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