Aug 30, 2014

Uber-mess - Why RBI is right ?

 Reserve Bank of India has kicked up a storm by preventing the use of foreign payment gatways in local transactions.. The first casuality of the move is Uber. Traditional media & social media is up in arms against RBI quickly for killing innovation with archaic laws. Even some of the most learned economists have written against RBI move ( )

In reality, is the RBI really a regulatory villain in this case ?
Here's the link to the original circular

There are three main things that are emphasized in this circular, directly or indirectly

(1) Transctions between two residents of India should be in INR. 
(2) The INR credit card transaction should be acquired by an Indian bank through an Indian payment gateway if the card is issued in India. .I.e, there should not be any forex flow in such transactions.
(3) There should be a two-factor authentication in Card -not - present (CNP ) transactions.

Make no mistake, Uber is a great step forward in terms of convenience.The iphone-app based billing is a true innovation. Taxi cabs across the world is feeling the heat of market disruption resulting in strikes in London , Paris and many more.

From a consumer's perspective, the convenience that Uber brings about is really un-paralleled.
However RBI has multiple responsibilities. Its not a pure consumer rights watch-dog. One of its mandate is to ensure currency stability. While, advocates of free market mechanisms scorn against this role, the reality of India is that your INR exchange rate has a great bearing on inflation. 

And, insisting that the transaction between two residents ( driver and the passenger ) should be entirely in INR is perfectly justified. Why should such a transaction cause a foreign exchange flow ? In Uber- model, the credit card transactions are routed through a gateway in Netherlands, and the payment to the driver comes from a different US / EU bank account. Meaning, in every transaction, there is a foreign exchange inflow or outflow that puts Indian banks at the possible risk of gain/loss depending on the exchange rate fluctuations. Add to that, the settlement risks in CNP's is much higher. Any chargeback claims will additionally result in forex flows.

What I find more disturbing about this model of currency flows is that the state loses its right to tax such transactions. These transactions are not going to hit Uber - India's bank account, and there is no way for the taxation authorities to assess the flows as gateways, banks etc are located abroad.
There's this well known method of tax avoidance in movie industry in India. If you look into the financial statements submitted by actors, production houses etc, you would see that the lead actor/actress was paid, only about say , 1 million INR.  In reality, much of the actual financial transaction takes place in tax havens outside of India. 

To curb volatility in currency markets, it is essential that these forex flows are controlled . To me , the spirit of this ruling is more on forex flows than on two factor authentication.

The point on two factor authentication is more from a consumer protection front to prevent incidents of card cloning and reducing chargebacks. From a systemic perspective, how do you build more faith in the credit card system - by reducing chargebacks and making consumers feel that the card is secure.
Two factor authentication does bring more comfort to that front, at the cost of convenience.

If Uber routes all these transactions through Indian gateways and Indian banks, then the concerns of RBI on forex flows is addressed. The only remaining point would be this consumer protection argument  of two factor control. If adequate auth controls and checks are present at the time of enrolment into this app, then the two factor auth at the time of actual transaction can be done away with .

As I put it initially, this ruling is more about forex flows. On that front, RBI is fully justified.

Jul 12, 2014

A tribute to Oranje - WC 2014

So, yet again Netherlands lost it near to the cup.  This time it was Semi-final..  It wasn't the most magnificent team.. Infact, it was a pale shadow of 2010 team which convincingly beat Brazil , Uruguay and many others before losing to Spain.. Yes Robben is a diver.. Yes RVP was largely absent minded..  But there is something special about the Dutch team that makes me sit glued to the TV every time they take the field.. And they have rarely disappointed me after I started following them from 1994 WC.    

Maybe, its the ability put up a strong fight, maybe its pace of their players starting from Overmars to Robben.. Maybe the forwards like BergKamp to RVP,  or maybe it is the rock solid defensive players like Jap Stam to the unlucky Ron Vlaar..  Or maybe it is the ability to lineup young talents one after other from Ajax & Feynoord football schools... Or may be, even the legacy of Cruyff , Van Basten & Gullit..

Yet again, they will be a good force at Euro '16 at France or WC' 18 @ Russia.. There won't be much more of Robben / RVP.. There will be the new lineup of prodigies like Clasie & Strootman ..

To me, the special factor about this Dutch team was their coach Louis Van Gal with his spot - on substitutions.. Have to say that Manchester United is in safe hands :) ..And as he does, I don't really care about who wins in the third place play-off.. But will watch it !

Jul 8, 2014

Travelogue - Hallstatt

A bit late, but nevertheless, the Austrian experience won't be complete without a post about this wonderful place - Hallstatt.  It is an Alpine lakeside village, about 3 hrs in train from Vienna , followed by a short ferry ride across lake Hallstatt ..

Well, what makes Hallstatt special -  The place is so beautiful that the Chinese have created an artificial Hallstatt . The village is a UNESCO heritage site as well .. I would rather let the pics speak about the place than write about it :)

For more information, you can visit