Uber vs RBI – and looks like the RBI might win

Uber India

Uber India

Chances are you already know about Uber. For those of you who don’t – its a brilliant app that allows you to book a cab at the tap of a button and charges the fare directly to your credit card. There’s no time wasted on processing the financial part of the transaction. In fact according this blogtwo to ten minutes are saved for both customers and taxi drivers thus indirectly contributing to our productivity.

But like all good things, it looks like Uber too might come to an end in India. Reserve Bank of India (RBI) has ordered Uber to shut down in India by October 31, if they cannot meet the conditions RBI has laid out for them to follow.

The Conditions

RBI, to combat the credit/debit card frauds has laid out a “dual verification” system for all card based transactions

  • If you’re transacting in person with your credit card, there are two verifications – the credit card itself physically, and the PIN, which is entered on the terminal.
  • For online transactions (also known as Card Not Present transaction) it consists of the card details themselves, and a one-time-password or other authentication information

RBI policies also state that the second authentication isn’t required if you are billing the customers as an overseas vendor. Up until now, Uber has been using this loophole by billing its customers via Netherlands. Competitors too, tried to use this model but unlike Uber they are based in India which makes it difficult for them to overcome India’s financial regulations.

 Was RBI right?

One might say, RBI’s missive to Uber makes sense because it levels the playing field. But the playing field itself is a place where the service is mediocre, where one is forced to waste 10 minutes just to pay the cab driver. Isn’t RBI’s regulation shutting down a useful business and an awesome innovation that negates this time wastage.

Agreed that the transaction security is also paramount. The two-step authentication, in any case, often relies on “one-time passwords” sent to a user’s registered phone. If the user is taking an Uber,  is it not redundant to unnecessarily send the password to the same phone he/she would be making the payment from?

On Uber’s part, it definitely violated the FEMA act which states – “Activities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted”. This and another regulation Payment and Settlement Systems Act which gives RBI the right to “regulate, supervise and lay down policies involving payment and settlement space in India”, gave RBI the fodder to shut down Uber in India.

What can be done?

It’s RBI’s duty to protect consumers from fraud. But in this case it might not have kept the customer’s best interests in mind. The RBI can take a step back from micro-regulation and instead lay out a more broadly defined consumer-protection rules that payment gateways can follow. Regulations on online transfer of small sums, can be minimal, to spur innovation and growth. Security is no doubt paramount, but instead of making consumers suffer for it, RBI can instead hold the cab companies accountable for security by increasing enforcement and by laying out stringent rules that payment gateways should follow.

Uber too can manage the situation, by arranging payment mechanisms with India-based payment portals. For them it would mean just adding one more screen in the payment flow process.

Uber had recently launched services in more cities in India, and I’d hate to seem them go. Here’s hoping for the best.

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