Google Capital recently made its first investment in an Indian company—but Freshdesk, a help-desk startup, happens to be registered in the US. If it had been registered in India, it might still be struggling with the strict rules on recurring payments from India’s central bank, which has been making things difficult for Indian software-as-a-service (SaaS) companies.
Many of India’s best SaaS companies are registered either in the US or Singapore. One of the reasons is that it is easier for companies to reach out to an international customer base. But the relative ease of conducting business also plays a big role.
An Indian startup called Practo, which provides a service that allows customers to book doctor’s appointments online, is registered in Singapore but still has to deal with a lot of the hassles of doing business in India. “We have to (manually) collect recurring payments and have to maintain a large team on the ground to do so,” says founder Abhinav Lal. “We also try and keep longer subscription periods and someone always has to remind the doctors for payments.” The whole process ends up adding to the company’s costs and delaying payments.
The Reserve Bank of India’s regulation at the root of these problems came into force in August 2009, and made it mandatory for customers to enter a two-step authentication password for every online credit card transaction. This was done to reduce fraud and cyber crime—especially merchants that kept charging customers even after they wanted to discontinue payments, according to Vishwas Patel, founder and CEO of Avenues India, the company behind payment gateway CCAvenue. “This became a problem as banks had to then recover payments from the merchants and there was large amount of fraud happening in the space,” he said.