Uber may have to tweak payment model in India


August 26, 2014

Nikita Garia, MINT

Bangalore, 26 August 2014

San Francisco-based Uber Technologies Inc. may be forced to change its business model, which relies on cashless transactions, after India’s central bank on Friday issued a notification that will reduce the convenience associated with the taxi booking app.

The Reserve Bank of India (RBI) on Friday said Uber and other companies that offer app-based purchases cannot allow customers to pay with their credit cards without a two-step authentication process. Customers have hitherto simply had to enter their credit card details at the time of signing up with Uber. Every ride was automatically charged to the card without any further verification.

RBI has given all such businesses time till 31 October to comply with the regulation. In late July, the Association of Radio Taxis (ART) had written to the central bank that Uber was storing credit card details of customers in its server and deducting fares without the two-step authentication, which involves entering the CVV (Card Verification Value) number and password.

Uber will now have to offer payment modes such as cash or mobile wallets and even consider installing credit card machines in every car, analysts said.

“Uber right now has only two options in front of it. One, exit the country. Two, tweak its business model which is not a very lucrative option,” said Anand Ramanathan, associate director at KPMG.

Uber did not respond to phone calls and emails sent by Mint seeking comment on RBI’s regulation.

In an interview in May, Uber’s general manager in Bangalore said that the company is “working on adding more options for customers to use Uber by staying cashless”.

Uber, which started its India operations in August last year, is present in 10 cities, which makes India second only to the US in terms of number of cities covered. It began operations in 2009 and is present in 44 countries. It allows payment only by credit cards in all these countries.

Moving to a different model of operation will not be easy for Uber as it will force the company to make significant investments and expose it to risks that it hasn’t had to take in any of its markets yet.

“The cash model will definitely add to costs. The logistics of cash management is not part of the Uber model,” said Devangshu Dutta, chief executive at Third Eyesight, a consultancy. “For managing cash, Uber will have to open cash collection centres which will create challenges at the services level.”

Besides cash, Uber’s other options include adding a mobile wallet to its app. A mobile wallet can be recharged by the customer using a payment gateway and the user can add money via credit card, debit card or net banking, all of which require a one-time password and CVV number.

“This will however work opposite to a credit card where user gets 45 days to make a payment. With a mobile wallet, the user will have to store money beforehand,” said Prashanth Rao, director at KPMG. The users will then have to think whether it is a good option to keep the money blocked in Uber’s wallet, Rao added.

Uber’s competitors in the Indian market largely work on a cash-based model. However, rival companies TaxiForSure, Meru Cabs and Olacabs are evaluating mobile wallets to ease transactions. Meru Cabs already has a card machine installed in each of its cars that customers can use to pay either via credit or debit card. Meru Cabs also has an app-based payment system that allows customers to enter their credit card details once. The details are saved but the customer has to enter the CVV number and password every time a transaction is made.

“We will be launching our mobile wallet in the next 15 days for which we have partnered with a payment processing company,” said Siddhartha Pahwa, chief executive officer of Meru Cabs. Pahwa, who is also the secretary of the Association of Radio Taxis, said that RBI’s regulation now brings everyone on a level playing field.

The global payment model of Uber works in a similar fashion across countries and the company is not known to change its model.

RBI’s move could possibly have one advantage for Uber: it may potentially increase its customer base. “If Uber moves to a cash model, it can work in its favour in the medium to long term. With cash, Uber can target a larger market. However, it is definitely a setback for now,” said Ashish Jhalani, founder of consultancy eTailing India.

(Published in MINT.)