Mumbai, India (4E) – India may prove to be an uphill climb for Uber Technologies Inc. The operators of this ground breaking application are now facing a closed avenue of business, after the Reserve Bank of India closed a loophole that allowed the application to provide a simpler payment system compared to its local counterparts.
In India, credit card transactions for cards issued in India require an additional authentication system at the point of sale. According to the RBI, the failure to comply with these rules means an outflow of necessary foreign exchange from the Indian economy. With this, the RBI insisted compliance from these start-ups as to the second factor authentication for all ‘card not present’ transactions in the country.
In another edict, the RBI had banned dollar denominated billing for local services. It has recommended that companies use offshore payment gateways for transactions done in India. This would immediately remove all CNP transactions that avoid the second verification step requirement as required by local finance laws.
Prior to this, foreign merchants operating in India find no meaning in this requirement set by regulators. It is now possible to purchase from international sites without going through the second factor transaction, which is a one time or permanent password that is required for CNP transactions in the country.
This non compliance was brought to light when Uber was launched in India. The rental service operates through a mobile app that connects users and taxi owners. This service provides a private car for hire service to riders. Upon reaching the destination, the rider need not pay anything.
The RBI issued a deadline, specifically 31 October 2014, for companies to comply with the full verification process. It also required that payments need to be done using a domestic bank and be paid in Indian rupees. The circular read, “It is advised that entities adopting such practices leading to willful non-adherence and violation of extant instructions should immediately put a stop to such arrangements.”
Uber, which is based in San Francisco, and its local counterpart, Uber India Sytems, could not be reached for comment outside business hours. It is backed by Google Ventures and is valued at USD17 billion. The application currently operates in 150 cities across 42 countries. In India, Uber operates in six cities, such as Delhi and Mumbai.
The whole case was elevated after radio taxi operators in India alleged that Uber was not complying with the required two-step verification system for credit card transactions throughout India. A spokesperson for Meru Cabs, one of the complainants, said, “It is heartening to see the circular issued by RBI. They have vindicated the stance taken by Association of Radio Taxi of India and issued circular to stop operations of defaulting organizations in the current form.”
On its website, Uber states it is not a taxi service, saying that “Uber itself does not provide transportation services and Uber is not a transportation carrier. Uber offers information and a means to obtain transportation services offered by third party transportation providers.”