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RBI takes broad swipe at Uber's credit card transactions, other FEMA violators

Without naming a specific entity, the central bank said that it had got complaints on breaches of the law as mentioned & advised the entities concerned to stop such arrangements

BS Reporters  |  New Delhi/ Mumbai 

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The Reserve Bank of India (RBI) has come down on entities abroad, such as Uber, the US-based taxi-hailing app, which allegedly flout the rules governing credit card transactions and the Foreign Exchange Management Act (Fema).

The move could also affect several apps and e-commerce that have come up by copying the Silicon Valley-based and Google-backed giant.

Without naming a specific entity, the central bank said on Friday that it had got complaints on breaches of the law as mentioned and advised the entities concerned to stop such arrangements. It has given them time till October 31 to wind up such arrangements.

The move comes as a relief for the local radio taxi sector, which felt threatened by the disruptive giant. The Association of Radio Taxis (ART) had on July 28 written to the central bank that Uber was storing the credit card details of customers in its server and deducting fares without a second-stage authentication, as mandated. ART had also alleged that the Uber payment mechanism of routing money through a Netherlands-based entity would amount to a capital account transaction and breached the Fema rules.

A spokesperson of Meru Cabs said, “It is heartening to see the circular issued by RBI. They have vindicated the stance taken by Association of Radio Taxi of India and issued circular to stop operations of defaulting organisations in the current form.”

The central bank said, “It has come to our notice that there are instances of card not-present transactions being effected without the mandated additional authentication/validation, even where the underlying transactions are essentially taking place 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). It is also observed that these entities are evading the mandate of additional authentication/validation by following business/payment models which are resulting in foreign exchange outflow.”


Such transactions, with an outflow of foreign exchange in the settlement of these transactions, breaches the directives issued under the Payment and Settlement Systems Act, 2007 beside, Fema, 1999.

Uber is a San Francisco-based information technology company which has taken the online world by storm with its revolutionary app. The five-year-old firm, backed by Google Ventures, is valued at $17 billion and has operations in 150 cities across 42 countries. In India, it is present in six cities, including Delhi and Mumbai.

Uber is not a taxi service, making this clear on its website — “Uber itself does not provide transportation services and Uber is not a transportation carrier.” Instead, Uber calls itself an information provider. “Uber offers information and a means to obtain transportation services offered by third-party transportation providers.” Thus, Uber signs up drivers and taxi users separately and connects them through a smartphone or a tablet-based app.

Uber makes it clear that it only acts as an intermediary between the customer and the service provider but it controls the crucial part of the relationship, the payment.

It deducts the fare from the customers credit card and pays the driver after deducting its commission. While the customer payment goes to a Netherlands-based entity, payment to the driver comes from a US-based firm.

RBI 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 instructions on security of card payments.

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First Published: Sat, August 23 2014. 00:46 IST
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