Taxi-hailing service Uber, for which India is the largest market outside the US, has come half way to meet the country's regulators and keep them in good humour. It has come out with a compromise formula before the expiry of the Reserve Bank's November deadline and this will ensure Uber continues its operations here. But the solution might cost the Google-backed company some of its 'coolness quotient' - a factor that drove Uber's popularity in India and globally.
From Thursday, Uber's customers across 10 metro and mini metro cities in India will have to open pre-paid virtual wallet accounts and pre-load those with cash. For this, the company has tied up with payment services firm Paytm.
This was done as Uber had run into regulatory hurdles, with the Reserve Bank of India (RBI) asking it to comply with its payment guidelines by following a two-factor authentication process. RBI, which had earlier given it time until the end of October to do so, had later extended the deadline by a month.
Under the new arrangement, the two-factor authentication will have to be done only at the time of loading or recharging the virtual wallet accounts, and not after each ride. The fare will be auto-debited from the wallets.
"The entire ride experience - from recharging your wallet to requesting a ride and rating your driver continues to be in-app, seamless and convenient," the company told Business Standard in an email. This alters Uber's global model where a customer's credit card details are saved on the company's mobile application once and each time the fare is auto-debited from the account.
However, the company will continue the present payment system for customers till November 30 for a smooth transition.
With Uber, whose claim to fame was its cashless experience, acknowledging RBI's concerns and altering its business model to comply, other foreign entities are also likely to be either inspired or forced to fall in line.
"The fact that Uber has let its global model go for a toss sends a strong signal which may lead to everybody else revisiting their models to align with the regulatory requirement in India," said Sivarama Krishnan, executive director at PricewaterhouseCoopers. It is not necessary that all Indian regulations are in the interest of the consumer or of the country and we need to address that too, but at the end of the day non-compliance to its regulations for a large economy like India should be unacceptable.
The Uber episode (the company is also being investigated for alleged service-tax violations) had sparked a debate in the country over whether the Indian regulators were being too harsh on new-age internet-driven companies that did not necessarily fit into the mould of traditional businesses. It had led RBI Governor Raghuram Rajan to retaliate by publicly stating: "If there is a rule on the book, we do not allow it to be violated simply because an innovation is cool."
RBI could not be immediately reached for a comment for this article.
The company had first come in the line of fire when an association of taxi operators petitioned to RBI that Uber was flouting India's Fema (Foreign Exchange Management Act) guidelines and procedures governing credit card payments. The payments from Indian consumers' credit cards were being redirected to one of Uber's foreign entities, which deducted its commission and returned a majority of the payment to the taxi driver in India. India's tax authorities had questioned the business model of Uber, which, according to them, was not paying taxes in India.
It is unclear if a pre-paid wallet model and its arrangement with Paytm will require Uber to remodel its entire business operations, be locally registered and pay more taxes in the country.
Bhavik Rathod, Uber's general manager in Bangalore, told Business Standard that the company was "working closely" with RBI to make sure it was compliant in every way. "This is our first step towards localising Uber and enhancing its reach." Rathod says even the consumers who do not have credit cards could now avail of its services, after a tie-up with Paytm. "It will help the company reach every second Indian as it expands its reach beyond the 10 cities," he said.
After Wednesday's announcement, Uber, though, might lose some of its edge in as far as payment convenience goes. Several new-age taxi aggregators like Meru, Olacabs and TaxiForSure also operate in-app pre-paid wallets. But Radhod disagrees. He says the company has made "in-app topping up seamless to make sure the cashless user experience continues."
If a user runs out of money in his virtual wallet and has already taken the ride, the arrears will be charged the next time he recharges the account and takes a ride. "We believe in the product and our consumers believe in it too. They will come back," he added.
| HOW IT WORKS |
1 Registering for Uber
2 Filling/recharging the wallet
3 Payment for the ride
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