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Friday, May 15, 2015

RBI solves the two-factor authentication problem. NOT.

22 August 2014: RBI blocked the neat payment mechanism invented by Uber. In two days, we figured this was a mistake.

15 September 2014: After thinking about this for 24 days, Raghuram Rajan said: If there is a rule on the book, we don't allow it to be violated simply because the innovation is cool. We pointed out that this was wrong.

14 May 2015: RBI showed that 18000 people in 265 days could have as much CPU power as two people in two days. However this policy change is not adequate! You can do these transactions upto Rs.2000 for a very specialised kind of card: an NFC card and NFC acceptance. Almost nobody in India at present has this. Hence, in effect, the problem has not yet been solved.

Internationally, Uber is synonymous with the cashless experience. Perhaps they gave up on the policy bottlenecks of payments in India: last week they started testing the use of cash in India. Compare and contrast with the way things are going elsewhere: E.g. in Denmark, shops are now permitted to refuse to take cash.

Stanley Pignal has written a special report in the Economist on financial technology. It makes for compelling reading. The field is pregnant with possibility for India. There are so many inefficiencies in the Indian financial system which could be attacked by such thinking. India has the requisite talent pool. Indeed, scrappy innovators in India, who are focused on solving inefficiencies in Indian finance, can build solutions that will matter on a global scale.

It's an exhilarating vision, but if you're in India, it will make you weep. None of this will come about under the present regulatory arrangements. We will silently slumber on in the dark ages. Far from launching Indian firms into the global economy bearing innovations of this nature, our regulators will domesticate the Ubers of the world and bring them down into mediocrity. It's broke and we should fix it. Cool innovation in financial technology is all about disrupting the cosy world of the incumbents, but financial regulation in India today is all about protecting the incumbents.

1 comment:

  1. The problem of two-factor authentication has not been 'solved.' Only contact-less card payments, which form a minuscule fraction of the ovreall usage, have been exempted. A risk-based approach would have seen exemption of small-ticket chip-card transactions across Point of Sale (PoS) and Card Not Present (CNP) categories as well. One can only hope that it will follow sooner than later.


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