Saturday, September 20, 2014

"Jugaad by Uber, scorned by RBI" - Right or Wrong

India is known for Jugaad and innovation. However, the Indian regulators such as RBI are not known for appreciating the jugaad or innovation by players who innovate.  Uber, a cab company seems to be at the wrong end of the stick. So what happened, and how. 
Uber's Entry into India :
Uber is an online platform that acts as an interface between passengers and taxi drivers. They operate through a smartphone which facilitates internet booking for passenger.
 The company entered India in August 2013 via Bangalore. (more on their entry can be known through the preceding link.) They were already present in around 40 countries.The main reasons for the company to venture in India was fragmented unorganized market and low entry barriers. The market was dominated by few players such as Meru, orange cab, and green cab . The company operates in the high end segment where there are very few players in the country. The cars available on rental include luxury cars such as Mercedes, Audi etc. The company derives strength from huge financial muscle that it derives from investors such as Goldman Sachs, Jeff Bezos (the man behind Amazon) and Google Ventures. 
Major Challenge for Cab Industry in India:
The major challenge for cab industry in India is customers cancellation rate at last minute . This has also lead to strikes at leading companies such as Meru. (Last minute cancellation impacting drivers morale) . Cab Companies have been trying different methods such as allocating pick ups only 20 minutes drive from drivers residence, however these methods cannot work always due to practical challenges. Then entered Uber, taking advantage of a loophole in the system they came with a novel solution. 

Solution through JUGAAD: 
All the payments were to be made online and no cash payments were accepted. It was made through a foreign gateway hence the two step authentication which is mandated by RBI was circumvented. The payments were to be made as soon as the person stepped out and hence the company could now conveniently charge for cancellation of cabs too as payment data was stored in advance. This made both the company and the drivers laugh all the way to the bank. However, it created an uneven playing ground leaving the traditional Indian cab companies complaining about not being able to charge for cancellations.

RBI's Action and Reaction thereafter
RBI has disallowed payments gateways from foreign countries from being used in India.   Thus companies such as Uber are in a fix. There is a lot of hue and cry from supporters of free economy including economists such as Ajay Shah who in his blog entry Uber versus RBI ( )
 has denounced RBI as being dictatorial in it's approach and not helping free economy to function in India. His example of Uber helping save millions because of few minutes saved in payment process appear highly stretched. In India we waste a lot of time due to roads being non existent and public transport system failing. Hence a few minute here and there involved in making payments will not make too much of a difference. On the other hand average speed of internet is surely on the lower side and everyone does not have internet access on their mobiles. Where, technological literacy is low and technology usage is on the higher side as a customer we do expect the regulator to play a proactive role in  protecting our interests.

To add to this India is not the only country where Uber is facing stiff opposition. Even in countries such as Germany and South Korea Uber has run into problems with the authorities. When it comes to payments online I agree it is difficult to make regulations that satisfy everyone. However before making any radical changes to the existing regulations it is important that we are able to regulate based on existing norms. So I do not find anything wrong in the action taken by RBI.
The Way Forward:
The company needs to change their business model going forward if it wants to continue to function in India. According to media reports the company would most probably continue to operate in India however the payment gateway would have to shift to some Indian gateway such as PayTM. This would lead to following the 2 step authentication process which might increase the "waiting time" and hence the inconvenience for the customers.


1 comment:

  1. I had read this issue of Uber in economic times sometime back and was under the same impression that Uber had put in an innovative style but I guess RBI had to think from a larger perspective. Nice to read, could get more information from your blog.