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Can UBER survive RBI Bouncer?

, August 28, 2014, 0 Comments

uber radio taxi app rbi-MarketExpress-inUBER, the Radio taxi App startup backed by Goldman Sachs and Google that took the world of transportation by storm, is facing a different kind of problem. Recent announcement by India’s central bank without naming any company specifically has come out with new guidelines that may alter the way UBER operates.

UBER impact on India’s radio taxi space was evident by splurge in the complaints, lodged by All India Radio taxi association, which includes major operators such as MERU, Ola Cabs, Tab Cab and others. Their main concern is that UBER is exploiting some loophole, which may give them a competitive advantage resulting in an uneven playing field.

Contentious issue seems to be in the collection and payment mechanism used by Uber. The collected amount is being remitted to a Netherlands based entity and the Payment to the drivers (net of commission – 20%) is being paid via an American account. This routing of money is amounting to Foreign Exchange violation. Sensing the gravity of situation, RBI acted very swiftly and issued directives to put end to these practices.

More importantly, the Uber transactions model would amount to breach of FOREX laws, as these payments falls under its capital account category, which is of serious violation and which RBI has taken note.

From Uber’s long-term perspective it is prudent they employ methods that doesn’t violate the law. Though deadline to fall in line before October 31stcould sound to be a lethal blow to Uber and whether it can survive RBI’s Bouncer?

Let us analyze to find a possible answer. An RBI directive is definitely a setback for uber but not a business threatening issue. The real issue as of now for UBER is how it can re-structure its receiving and payment model and also take back 20% commission outside of India. RBI guidelines have far reaching consequences to other American giants such as Apple and Google. End users are buying mobile apps, music and other services offered by these companies using Credit card without level 2 authorizations, which is a worry situation for other companies.

RBI has acted cautiously, treading a fine line by not naming any specific entity as it tries to fix the problem as well as giving enough room for the companies to be compliant.

The fact is that India is in dire need of disruptive technology, concept and services such as uber to shake up things and which would lead to a better services and experience for Indian customers.

It is also important to know the business model of Uber. As company states on its website Uber is not a taxi service — As per its web site – “Uber is evolving the way the world moves. By seamlessly connecting riders to drivers through our apps, we make cities more accessible, opening up more possibilities for riders and more business for drivers.” Thus, Uber signs up the drivers and taxi users separately and connects them through a smartphone or a tablet-based App.

So effectively Uber only acts as an intermediary between the commuter and the service provider(driver) but it controls the crucial part of the relationship, the payment.

RBI guidelines is coming with its own set of compliance but it is certainly not business threatening one. In case of Uber, the company has redefined the way people commute. Whether it is experience or cost effectiveness, Radio taxi is most happening space in transportation industry. People are ready to pay for the service, which makes a difference to their life and lifestyle.

For Uber, customer experience matters the most that they intended to do with elegance and poise and also playing by the rule of law. As they are quite well equipped to take up the regulatory challenges and forge ahead. Good service and great customer experience waiting for more Indian cities and people.