Overseas payment gateway for credit card transactions within India is now closed: RBI

The RBI has shut the overseas payment gateway for credit card transactions within India, saying that the rules need to be followed with respect to e-commerce credit card transactions “essentially taking place between two residents in India”. This means that firms such as Uber will have to follow the two-step authentication procedure that it was able to evade by virtue of having an overseas payment gateway. Its competitors welcomed the move. The apex bank asked banks to make sure that payments should be in rupees in cases when the credit card is not presented physically.
The move from RBI will have an immediate impact on the much contended taxi business, especially Uber, which has swiftly attracted users in India. The San Francisco based company has so far been able to charge credit cards of users without authentication. The users of Uber are automatically charged at the end of their ride based on card details furnished at the time of enrollment. They are able to do so because authentication is not needed when someone buys from websites based overseas. This loophole has now been closed by the central bank.
The RBI has clarified that “such camouflaging and flouting of extant instructions on card security, which has been made possible by merchant transactions (for underlying sale of goods / services within India) being acquired by banks located overseas resulting in an outflow of foreign exchange in the settlement of transactions, is not acceptable as this is in violation of directives issued under the Payment & Settlement Systems Act 2007 besides the requirements under the Foreign Exchange Management Act, 1999”.
In order to prevent fraudulent activities the central bank had made it mandatory for banks to put in place additional authentication based on information not visible on the cards for all online transactions.



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