Just because a Silicon Valley technology company wants to do business in India, it does not mean the country must roll over backwards and become a welcome mat. Take Uber, the ride-sharing service that the company says operates in 51 countries including the major Indian metros. The company’s claim to fame is that it is a technology broker — connecting people who want a ride with drivers who are willing to provide one. In the US, these drivers are private individuals who bring their cars into the Uber ecosystem but in India, the company restricts its ‘fleet’ to drivers who work for commercial taxi operators. Uber just raised $1.2 billion in VC funding valuing it at a whopping $40 billion.
In the so-called shared economy, companies such as Uber and Airbnb are severely disrupting decades-old and staid business models of taxi companies and hotels. This is the good news.
But Uber, the undisputed leader in the global hail-a-ride industry, has struggled to adapt to the very markets it serves. In its aggressive push to have things its way, it has fought with municipalities, states, central governments and even the media.
Entering India, it invited enough scrutiny for its one-swipe credit card payment process (which it universally uses) that it triggered a special notice from the Reserve Bank of India in August. The RBI gave the company three months to comply with its 2FA regulations.
So what was the RBI spat all about? At the end of the ride, Uber requires the client to make payment with a credit card. But because the Uber driver is not technically a merchant who can verify the authenticity of the card-holder, the RBI feared that Uber could potentially end up processing a stolen credit card. Or that the Uber driver could note down a customer’s valid card details and abuse the card as his own later.
Luckily, the RBI has world class rules in place for such CNP — card not present — payment scenarios when customers are not at the merchant’s cash register, such as when buying online or over the phone through an IVR system. To prevent fraud, the central bank requires Indian banks to implement two-factor authentication (2FA) technology, using which customers can protect their cards with something they know (passwords) and something they have (their mobile phone, which receives the One Time Password generated at the time of purchase). In August, the RBI ruled that Uber transactions fall into the CNP class and need to be regulated as such.
Uber did not like this ruling. In a recent grudging blog post headlined, “Uber is now compliant but less convenient”, the company said, “While this requirement is intended to provide more security for consumers, it is an antiquated solution that is (unnecessary and) cumbersome for consumers and stifling for businesses across India.” Really?
Decent card securityWhile credit card penetration in India is low by global standards, card fraud as a percentage is also low precisely because of simple and elegant security measures such as RBI’s 2FA. Google, Facebook and Yahoo! heavily promote 2FA technology to have their users keep accounts secure. Does Uber really believe that financial transactions ought to be any less secure?
The US payments industry lost $7.1 billion last year to credit card fraud, a 29 per cent increase from the previous year. So Uber set up a deal with a smartphone wallet company using which customers can create a prepaid account that can be regularly “recharged”. Never mind that to add funds to the prepaid wallet, customers will still be using 2FA technology.
A Uber customer would use a smartphone to pay for his ride with funds being deducted from the electronic wallet. But there are problems with this model too. What happens when a customer runs out of cash in his prepaid account because of an unforeseen traffic backup? Note that Uber not only charges per km but also per minute.
Uber could have avoided this public fight with the RBI. For starters, it could have offered a simple payment system — cash — and adjusted its India back office technology to adapt. Amazon and eBay have offered COD payment options to Indian customers although these are rarely used by their home customers in the US. Successful companies realise that a one-size fits all approach rarely works in a market as complex as India’s.
The writer is the managing director of Rao Advisors LLC