Cab Race

The war between Uber and India’s taxi operators is hotting up

August 19, 2014
August 19, 2014

Uber is stepping on the pedal in India and home-grown taxi rental companies, some backed by American private equity companies, are trying to push back.

Uber today rolled out in four more Indian cities—Ahmedabad, Chandigarh, Jaipur and Kolkata—taking its presence to 10 cities. In terms of the number of operating cities, India is now Uber’s largest market outside the United States.

And in Bangalore, the first city it had launched in, Uber has slashed prices by 25%, potentially sparking off a price war. The company claims that its UberX service in the city is now almost as cheap as riding an auto rickshaw.

India’s taxi rental companies are not sitting back and watching Uber eat their lunch.

While homegrown cab companies such as Meru Cabs, Easy Cabs and Ola have built apps similar to Uber to make the booking process easier, they can’t do one thing that Uber can—store the customer’s credit card details on their databases and charge it at the end of the ride.

So while Uber riders can walk away at the end of the ride, while the app charges the credit card, customers of other services have to remember to carry cash. This is because India’s central bank, the Reserve Bank of India (RBI), does not allow Indian companies to charge credit cards without a two-step authentication process. Uber, which uses an overseas payments gateway, is exempt from this problem.

We have reported earlier how this is a serious problem for India’s Software-as-a-Service (SaaS) companies, which bills customers each month. Due to this, some startups choose to incorporate overseas.

Indian car rental companies first wrote to the RBI, accusing it of violating foreign exchange laws. Now, apparently, some are planning to set up collection offices overseas to be able to do the same. Some operators are planning to introduce payments through mobile wallet services as well.

The complaint of Indian taxi companies to the RBI about Uber questioned how the company paid its drivers as well.

The Association of Radio Taxis (ART) alleged recently that Uber violates the Foreign Exchange Management Act (FEMA) and the central bank’s rules on credit card transactions. The ART had pointed out that Uber accepts payments in Indian rupees, and then transfers it to a Dutch Bank. The payment to the Indian cabbie is then sent from a US bank. In its letter, the ART had argued: “Collection of fares by Uber on behalf of a taxi driver in India should qualify as a capital account transaction under FEMA, and since such a transaction is not specifically permitted under the regulations, it is our understanding that the transaction is in gross contravention of the Indian exchange control regulations.”

It’s not just the payments mechanism of Uber that has got other cab rental companies smarting. Ola Cabs launched its Ola Luxury service earlier this year allowing customers to hire BMW and Mercedes cars for their ride.

While Uber is riding high currently on a wave of buzz and popularity, if the RBI finds merit in the taxi association’s complaint, it could jeopardise the company’s operations overnight.

Uber raised $1.2 billion earlier this year in the largest funding round for any startup.

This article is a part of Quartz India. For more, follow this link.

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