The Reserve Bank of India’s Friday notification on card payments is being seen as a clarification on Google-funded taxi rental app Uber’s operations in India.
That is because the memo comes shortly after vocal protests by India’s taxi operators, who argued in complaints to the central bank that the American company was bypassing the rulebook and violating India’s foreign exchange laws in the process.
The crux of what the RBI has said is this: if a transaction is happening between two residents in India (“card issued in India being used for purchase of goods and service offered by a merchant/service provider in India”), then it must follow earlier instructions on two-step authentication in ‘card not present’ (online, in-app billing) transactions and such exchanges must be settled in Indian currency.
As we have explained before, Uber accepts payments in Indian rupee and then transfers it to a Dutch bank. The payment for the cabbie then comes from an American bank. Since the transaction is between an Indian passenger and an Indian driver, as RBI has now emphasised, the payment cannot be settled in foreign currency under Indian laws.
If Uber cannot bill credit cards through its app, its main differentiator from Indian cab companies will go away.
Uber and others who follow similar systems have till October to play ball, but the decision doubtless comes as a blow to the taxi rental app that Indians were adopting rapidly, making the country Uber’s largest market outside the US in terms of the number of cities it was operating in.
Uber refused to comment on what the company plans to do to tackle the problem that this move throws up now. “India has been a promising story for us. There are several cities in India where Uber can be launched. We are focused on the India market and are looking to launch in more cities,” Neeraj Singhal, who heads the India expansion at Uber, said. He declined to comment on the RBI mandate.
But Uber is not the only company that will be affected.
American companies such as Google, Apple or LinkedIn, that either bill Indian citizens for purchases or store credit card information for recurring monthly billing might also have to revise policies or institute a two-step authentication process. If it comes to that, India might become the only market where an Apple app store purchase will involve an additional authorization factor.
It is unclear which companies and what services will be affected by RBI’s clarification. Many Indian startups were incorporating overseas because RBI norms made it impossible for them to bill customers on a monthly basis from their credit cards, while foreign companies could do it for services provided in India.
“It is further advised that where cards issued by banks in India are used for making ‘card not present’ payments towards purchase of goods and services provided within the country, the acquisition of such transactions has to be through a bank in India and the transaction should necessarily settle only in Indian currency, in adherence to extant instructions on security of card payments,” the bank’s Friday notification said.
This will likely mean a lot of legal wrangling over definitions of what constitutes “goods and services provided within the country”. Is a Fifa 2014 game downloaded from the Apple app store and played in India a good or service provided within the country? If so, will such purchases now have to be carried out using an Indian payment gateway? What about apps made by an Indian company purchased by an Indian resident from the Apple App Store or the Google Play store? Does that count as a transaction happening between two residents in India?
Companies are likely to seek more clarity from the RBI.
LinkedIn and Apple were not available for a comment over the weekend.