Cash Acceptance May Not Help Uber Gain Speed in India

Uber recently changed its model in India to more appropriately serve the local population, welcoming auto rickshaws and cash payments. But these changes are unlikely to tackle the bigger issues the ride-sharing service faces in the country.

Last week, Uber launched UberAuto, which allows consumers in New Delhi to hail auto rickshaws, a more popular way to commute in the region. This news came hours after Ola Cabs, a competing car service in India, announced it had raised $315 million in funding.

For now, Uber’s new rickshaw service is cash-only, which seems in line with India’s predominantly cash-based economy. But while these moves seem promising, Uber could still struggle because of the country's expensive 3G/LTE data networks, said Deva Annamalai, a payments and financial services industry expert from India.

Annamalai moved to the U.S. from India in 1998. He is now the director of innovation and insights at Fiserv, although the opinions expressed here are his own.

In India, “voice is the preferred way of communicating,” Annamalai said. Typically residents prefer to call for a ride instead of launch an app, he said.

With Uber, Indian consumers download a mobile app which can then connect to UberAuto; a driver can then confirm the ride. But that process assumes that riders and drivers will have access to mobile phones and want to use their data plans for pick-ups.

“A typical auto rickshaw driver is not very economically well-to-do, so them having access to a smartphone may be a tricky proposition,” Annamalai said. On top of that, New Delhi and other major cities in India are quite crowded, so a commuter could easily hail a rickshaw on the street, he said.

Uber did not reply to requests for comment.

Uber and Ola Cabs could capture market share with the more affluent consumers in India. Plus these mobile-based businesses “are looking to capitalize on the younger generation who have disposable income and are...willing to experiment with these newer service offerings,” Annamalai said. More than 50% of India’s population is under 25-years-old.

Countries in the Asia-Pacific region, including India and China, are becoming crucial markets for Silicon Valley-backed technology companies. These emerging markets have leapfrogged developed markets in terms of mobile technology adoption, and the sheer population is also a major appeal for moving into the region.

However, these markets can also be quite challenging for U.S.-based companies. The Reserve Bank of India has strict credit card payment rules, demanding two-step authentication. Uber clashed with the Reserve Bank over its process and ended up partnering with Paytm, a payment platform provider to comply with the rules. Zomato, a restaurant discovery app, has also faced trouble launching in India because of the Reserve Bank’s rules.

PayPal and Amazon have similarly struggled to gain a foothold in India.

While Uber was able to find a partner that satisfied India’s payment rules, the car service’s reputation in the country is suffering after a commuter accused an New Delhi Uber driver of rape in December. After the incident, Uber was banned from the capital city. The company has updated its safety regulations and in late January restarted its service even with the government still declaring the company blacklisted. Uber has applied for a radio taxi license under its subsidiary, Resource Expert India Pvt Ltd. but it’s unclear whether the New Delhi government will continue to act against Uber.