Ask HN: What is wrong with Reserve Bank of India?

This is a bit of rant but I'm also wondering if there is anything we (the Indian tech community) can do about it?

If you're an Indian startup, I'm sure you must know that the Reserve Bank of India has the worst policies when it comes to charging a credit card.

1) In India, you cannot create recurring subscriptions as the RBI prohibits charging the credit card automatically. Not one Indian payment processor (I've talked to a many) gives you the option to create recurring subscriptions. Can you imagine where half the SaaS startups will be without recurring credit card subscriptions?

2) Add to that, Paypal to Paypal transfer within India is prohibited by RBI. Why? Because certain people used to evade tax by purchasing goods directly with their Paypal balance. So, instead of catching the tax evaders the RBI found it easier to ban the whole thing. They could have made it mandatory for Paypal to report every transaction (as they require a a PAN card) but banning it altogether was easier, I guess?

3) Even big companies like Uber had to recently discontinue Credit card purchases because of these inane credit card policies of RBI [1]

4) I really don't think it's about customer security (since the rest of the world seems fine with it) but rather some "Babu" type mentality which is to ban the whole thing rather than make the efforts to make it work securely.

Anyway, enough about the problem. Now what can we do about it?

I know Modi really wants us to "make in India" and wants to promote the IT industry. Who are the right people to contact who can do something about this?

[1] http://qz.com/296483/indias-credit-card-rules-just-took-the-ease-out-of-uber/

Agreed on all points.

This problem has led to the proliferation of wallets. PayTM, ICICI Pocket and other virtual wallets are gaining ground super fast coz of their ease to do transfers. The whole market is heading in that direction purely because of RBI's short sighted policies.

I have a feeling that when a scandal/scam occurs on this type of a system. The ban hammer comes down on them too.

For anyone who doesn't know, http://en.wikipedia.org/wiki/Permanent_account_number

A tax ID (and physical card) issued to individuals and other tax-paying entities. The PAN must be quoted in all high-value cash transactions and money transfer mechanisms (such as PayPal).

By the way, for Indian taxpayers the advance tax deadline for this quarter is today :)

>In India, you cannot create recurring subscriptions as the RBI prohibits charging the credit card automatically.

I am really happy that this is how it is. There is no shortage of cheats and frauds in India. Thanks to the RBI I can rest easy without worrying about getting (unsanctioned) charges on my credit card from shady businesses.

The RBI does provide an alternate means for supporting recurring bills. If you are a business in India try looking into the ECS option: http://www.rbi.org.in/scripts/ECSUser.aspx

While I am not trying to defend the RBI, I will try and give the reasoning from RBI's perspective. Note that I don't personally support these bans.

1) Banks in India do not provide easy ways to do chargebacks. Also, many people are not even aware that you can do chargebacks. I have to manually call a bank and ask them to do so after going through a couple customer service representatives. Also, consider that a big chunk of the population is coming in the ambit of financial institutions for the first time. Many people are opening their bank accounts for the first time. Many people in India still do not trust the banks. If they see a couple hundred bucks vanishing from their accounts, they might as well abandon putting money into the accounts. Incidents like Target or Home Depot if happen in India will rock the trust that people have in these institutions.

Banking in India is a business activity synonymous with trust [1]. And in my opinion RBI has done a fine job of it.

2) RBI banned Paypal earlier because it concluded it's not complying with regulatory framework of the country. These regulations are in place for a reason. If they are obsolete then we should campaign for them to be eased. But you don't get a free pass just because you are a big entity.

Paypal as they were operating earlier had to be regulated as a bank and PayPal does not want that to happen. Any entity which provides on-demand payments back then had to be regulated as a bank as per RBI rules. PayPal was basically circumnavigating this regulation so that they don’t have to answer questions to the government about how they conduct business. Also, getting a banking license requires a lot of regulatory oversight. The closed wallets regulations that RBI came out with later was a in my opinion direct response to this.

3) Uber was routing Indian card transactions internationally. They were in essence exploiting a loophole in the regulations. If RBI hadn't blocked Uber, then Olacabs, Flipkart, etc. will also have done the same. This will have directly undermined the 2FA policies RBI has put in place. Forcing Uber to comply with the policies was the right choice at that moment.

4) The proliferation of closed wallets has forced RBI to consider whether removing 2FA on small value transactions will be beneficial.

You should understand that India's economy has only been opened recently. A lot of the restrictions will go away with time. If you think they are harmful then convince the RBI of the same. But these restrictions cannot be removed overnight just because a new startup feels the need for the same. RBI's each decision will have far reaching impacts on the financial systems of the country and they need to be taken with utmost care and foresight.

[1] http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=587

Edit: Added more context for Paypal