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Aug. 23 (Bloomberg) -- Uber Technologies Inc, maker of the ride-hailing application that has disrupted taxi networks around the world, may face a setback in India after the central bank closed a loophole that let it provide a simpler payment system compared with local rivals.

All transactions involving credit cards issued in India for goods or services in the country must have an additional authentication system at each point of sale, the Reserve Bank of India said in a statement yesterday. Evasion of these rules by some companies has led to an outflow of foreign exchange, the RBI said.

Uber, which landed a $17 billion valuation in its last funding round, would have to change its app to add an additional level of authentication or adopt a different model to comply with these rules. That would put its card management on par with local rivals including Mega Cabs Ltd. and Meru Cab Co., that have claimed Uber’s trademark ride-payment system violates Indian foreign-exchange laws, according to a report in the Economic Times daily.

Customers using credit cards to pay for taxis hailed through local companies, must enter the security code or a one-time-password delivered by text message for each transaction, Siddartha Pahwa, chief executive officer of Meru, which runs a fleet of about 10,000 radio taxis in the country, said in an interview. Uber’s system violates that rule, he said.

‘Created Parity’

“We are very happy to see that RBI has indicated as such and created parity in the industry in all aspects,” Pahwa said. “All operators should follow the law of the land.”

Uber’s Asia spokeswoman Evelyn Tay did not immediately reply to an e-mailed questionnaire sent outside regular office hours.

Companies have evaded local card security rules by “camouflaging” transactions using an overseas payment system, even though both the customer and the service provider, are India residents, the RBI said.

“Entities adopting such practices leading to willful non-adherence and violation of extant instructions should immediately put a stop to such arrangements,” the central bank said, giving companies until Oct. 31 to comply.

To contact the reporter on this story: Adi Narayan in Mumbai at

To contact the editors responsible for this story: Stanley James at Jim McDonald, Garry Smith

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