Today’s post covers a CNBC article detailing Uber’s recent announcement regarding payments:
Ride-hailing giant Uber is making a deeper push into financial services.
The company announced on Monday the formation of a new division called Uber Money to house its efforts, which include a digital wallet and upgraded debit and credit cards. The emphasis, at first, will be expanding Uber’s efforts to give its 4 million-plus drivers and couriers around the world access to a mobile bank account so they can get paid after each ride, according to Peter Hazlehurst, who will head the new division.
“We wanted to help everybody understand that there’s a new part of Uber that’s focused on financial services and that has a mission of giving people access to the type of financial services they were excluded from,” Hazlehurst said in a phone interview.
Uber’s foray in to the financial services market is very interesting as the company has several elements going for it. Uber has already dealt with some of the key consideration for financial service adoption, having established name recognition and trust with its drivers and riders.
Under pressure to turn a profit amid competition from new ride-sharing entrants around the world, Uber is betting that by building out its financial ecosystem, it can keep drivers and riders loyal to its platform. The company topped 100 million monthly active users this year. Many of them use credit cards to pay for rides and food orders. Future products could remove costs related to financial middlemen or generate new revenue streams.
In June, CNBC was first to report that Uber was ramping up the creation of financial products by hiring engineers for a fintech outpost in New York.
Uber is rolling out globally a debit card with an enhanced “instant pay” service it has been testing in the U.S. and a few other markets. The feature has taken off in the U.S, with more than 70% of driver payments made using instant pay, according to Hazlehurst. It is essentially a no-fee banking account, with the debit card in the U.S. linked to an account provided by Green Dot.
“Not only do you get access to your earnings in real time, it doesn’t cost you anything to keep the money there and you can spend it whenever you want to,” Hazlehurst said.
Instant pay is a perfect complement to the card offering if you are an Uber driver. Often “gig workers,” like those who drive for Uber, need access to their earnings as quickly as possible in order to pay their bills and maintain their desired standard of living.
With this feature being offered at no charge, there should be no concerns that the offering is usurious and that Uber is taking advantage of their unique position. This is because some “gig workers” are considered to be financially underserved.
These payment innovations highlight the reality that many in the gig economy are struggling to make ends meet. Another popular feature, no-cost $100 overdrafts, helps cash-strapped drivers pay for gas to kick off a working day. It is, however, a better alternative than high-interest payday loans.
Uber’s ambitions could bring drivers into the realm of digital finance in parts of the world where cash is still king, like Pakistan and Bangladesh. About 40% of all Uber trips globally are paid using paper currency, Hazlehurst said, and Uber is eager to bring that figure down.
After equipping drivers with electronic bank accounts — echoing the model of so-called challenger banks like Chime and Varo — would Uber one day look to provide its many millions of riders with an account, too?
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Uber’s move is the latest sign that tech giants are looking to make inroads into finance. Apple recently launched a credit card with Goldman Sachs, and Amazon has been offering small business loans to its merchants for years. Facebook unveiled an ambitious plan this year to help remake global finance with its libra cryptocurrency, although that effort lost momentum after some corporate partners abandoned the project.
Among new products Uber was set to unveil at a payments conference in Las Vegas was a digital wallet called Uber Wallet that riders and drivers can use to store dollars, track their transaction history and make electronic payments. Apple Pay and Google Pay will be integrated with the service early next year so drivers can immediately spend their earnings, even without a physical debit card, Hazlehurst said.
The ability to manage funds is also a strong attractor. After all, Uber drivers have to have a smartphone. It’s only natural to launch this enhancement which also makes it easier for drivers by providing an alternative form factor.
Uber recently surveyed U.S. drivers about whether they’d be interested in taking small loans from the company, Hazlehurst said, confirming a report from Recode. It’s too early to say if they’ll do that in the U.S., but in several countries including Brazil, India and Peru, Uber already offers micro loans to drivers, he said.
For riders, Uber’s credit card, a joint product with Barclays, will be reintroduced with richer rewards for payments within Uber’s transportation and food delivery services.
As for offering credit cards … I understand the need for both the drivers and for Uber’s long term financial success. For me this is a bit of a wait and see. Bad decisions on credit card offerings or offering credit with easy terms to persons who are somewhat financially challenged can be a bad recipe.
Overview by Sue Brown, Director, Prepaid Advisory service at Mercator Advisory Group
