Uber-cautious

The Reserve Bank of India may be on legally firm ground in demanding that entities such as Uber, the mobile phone-based taxi sharing service, comply with its regulations on how online transactions should be authenticated. Essentially, the RBI mandates a two-step authentication for all domestic online transactions. Uber works by storing the credit card data of passengers and automatically deducts fares at the end of every ride. The process is convenient and saves valuable transaction time, but Uber’s competitors have been up in arms about the hugely successful radio taxi service, which has an expanding global presence. They have pointed out that the payments charged on credit cards are remitted to foreign banks and a part of this money is then round-tripped to pay the cab drivers. So much so, the charge is that Uber is violating the Foreign Exchange Management Act as well as the Payment and Settlement Systems Act 2007.

However, the Uber episode raises a larger question. Isn’t it time the RBI changed its attitude and made credit card and online transactions easier for customers? Should it be drawing some lessons from the enormous and competition-threatening popularity of Uber? That a large number of consumers opted to freely share their credit card details with Uber shows that they were willing to make the trade-off between safety and convenience in favour of the latter. This is hardly surprising as customers in India trust their credit card details with vendors such as Apple or Amazon. The two-factor authentication is an irritant for credit card users for offline purchases as well. Purchases require a PIN authentication and a signature, unlike in the West, where the former is sufficient. In many merchant establishments such as restaurants and petrol pumps, the device for PIN authentication is often unavailable near the point of sale. Clearly, the two-factor verification militates against the broader policy objective — migrating more Indian consumers to a non-cash, electronic payment mode. Apart from improving productivity, the use of plastic saves money for banks, reducing the burden on branch banking, and ATM infrastructure and maintenance costs.

The RBI’s anxiety about protecting consumers from rising instances of credit card fraud and cyber crimes such as phishing and hacking is understandable. But the regulator needs to examine if such frauds can be curbed by imposing more responsibility and liabilities on the service providers who are privy to customer data rather than by subjecting the customer to greater checks. After all, many developed markets, where credit card and electronic transactions are pervasive, work towards smoothening their use; it may pay to study and emulate their methods.

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