The recent Reserve Bank of India (RBI) directive on additional verification for all Indian credit card transactions has put some startups in a fix. The startups getting affected are those who operated through foreign payment gateways that allowed them to avoid the mandated two-factor authentication.

Uber, the US based taxi hailing application and the world's most valuable startup, is going to be affected majorly through this move by RBI. RBI's mandate came just days after Indian cab companies complained that Uber, was not following the two-step verification process, although RBI didn't mention any name of company in particular.

This move is also going to act as a major problem for the companies that sell applications and software on Google and Apple store and those who have subscription based business models.

The RBI circular insisting on the two-factor verification came out on 22nd August, 2014 and didn’t mention the name of any specific company. Interestingly, this circular saw the light of the day just days after the Indian cab companies complained that the US based taxi service app, Uber, wasn’t obeying the two step verification process. The circular besides mentioning the additional verification step also carried that the RBI wanted all the transactions being held to be carried out in Indian currency and not the US dollars.

Magzter, a New York based online magazine subscription running on Google and Apple devices is one of the impacted companies. The magazine earns about five percent of its sales from India. "I can’t imagine a credit card user going through this process for a Rupees fifty subscription- it just puts too much friction into the buying process", said Girish Ramdas in a statement to the Economic Times.  Girish is the co-founder and CEO of Magzter.  He also added that this move by RBI has taken away the ease to buy with just one easy click. He further insisted on having a minimum amount above which the two-step verification should be applicable.

Cloud-based startups of the country could be among the worst affected, as these companies charge their customers on a recurring basis every month. On the other hand, the ecommerce companies operating in the country have nothing to worry about, as most of them are already using this two-step verification procedure.

According to Ambarish Gupta’s statement to ET, one of the major reasons for friction in the SaaS industry is the archaic rules set by the Reserve Bank of India. Ambarish is the co-founder of Knowlarity Communications.

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