Indian startups vex as foreign cos bypass RBI security check

BANGALORE: India’s startups are asking for payment security rules imposed on them by the Reserve Bank of India to be extended to foreign entrants offering similar services in the country.

The startups say the foreign players are able to circumvent the two-stage credit card authentication mandated by the RBI by routing transactions through payment gateways abroad.

This gives an unfair advantage to foreign players as they are able to use the clients’ credit card information stored on their database for recurring transactions with minimum fuss. The Indian startups cannot do this as they have to contend with another layer of security.

In a written complaint to the Reserve Bank of India, Mumbai-based radio cab service Meru Cab has said San Francisco-based taxi hailing app Uber has an unfair advantage as it provides services to passengers in India by charging them via international payment gateways, which don’t need the RBI mandated two–factor authentication.

In case passengers don’t turn up or cancel bookings at the last minute, Uber can charge their credit card directly, a benefit no Indian player can avail. This is important as cancellation rates in the industry are as high as 12per cent after a cab has arrived. “Our complaint is that Uber is getting an unfair advantage over all Indian taxi service providers. The rules should be the same for everyone.” said Siddhartha Pahwa, CEO, Meru Cab. “Officials at RBI understand our request and have said that they will look into the matter.” According to RBI guidelines, all transactions using cards issued in India have to undergo a second level of authentication using a password or a one-time password SMSed to the mobile phone of the user.

RBI’s chief general manager G Padmanabhan, who is responsible for the authentication guidelines for online payments, did not respond to ET’s emailed queries. However, Uber said it is compliant with all laws. “Uber works with leading global payment processors, who themselves are properly licensed according to local regulations, to facilitate transactions in more than 40 countries around the world,” said Allen Penn, head of Asia operations at Uber.

Online hotel booking providers such as StayZilla are also unhappy. “Indian online hotel booking sites are at a loss as they can’t charge customers the full amount when they don’t turn up. International players store credit card details and can charge customers fully if they don’t

turn up after paying a partial reservation amount,” said Yogi Vasupal, cofounder and CEO of Stayzilla, a budget hotel booking site. “Either we should be allowed the same benefits or global payment gateways should also be subject to two-factor authentication.” To circumvent the problem, several Indian e-commerce entrepreneurs who wish to expand their business overseas are registering companies abroad. Online restaurant guide Zomato which plans to charge customers for table bookings and dining from this year, is in the process of registering a local subsidiary in each of the 12 countries it has operations in. “We will install a local payment gateway in each of the local markets to let our foreign customers pay with ease,” said Deepinder Goyal, cofounder and CEO of Gurgaon-based Zomato.

In the melee, Indian payment gateways are losing out on business as many companies choose to install international gateways. “The RBI needs to give more clarity on the system because ultimately it is giving foreign internet firms a big competitive advantage,” said Nitin Gupta, cofounder CEO of payment gateway PayU India. Payments is one big reason why Indian firms are setting up offices in Singapore or the US.

Indian startups vex as foreign cos bypass RBI security check