Uber Money: what you need to know
Uber has launched a financial services division called Uber Money which will provide a digital wallet and debit cards for drivers.
The platform will allow drivers to be paid instantly for their work, while the debit cards offer cash-back on fuel on 3%, rising to 6% for drivers who earn the most by driving the most miles.
In the short term the move is designed to target driver loyalty; if drivers come to rely on the Uber Money services, it is less likely they will moonlight on other ride-sharing apps.
The move has been described in the press as a push into financial services, with the promise of a consumer bank account in the future which could see it enter new regulatory regimes.
Should it become regulated by the FCA in the UK and enter the Senior Managers & Certification Regime, the “Boober” scandals of the past that saw the de-throning of previous CEO Travis Kalanick could mean heightened regulatory scrutiny and require a change of direction of its well-documented internal corporate culture.
Uber is also re-launching its credit card, in partnership with Barclays, where it will offer 5% cashback to consumers on its mobility and food delivery services.
Uber offers ‘micro-loans’ in territories such as Brazil and Peru, and it is looking into offering that service in the US and UK. Creating a retail debt market would also help to drive longer lasting bonds with drivers.
Market share
In its emerging markets, where Uber has the greatest growth potential, a large number of its drivers are un-banked or transact in cash.
“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,” head of Uber Money Peter Hazlehurst told CNBC.
Uber said it will provide instant payments on the platform direct to driver’s digital wallets once rides are finished, which would help attract new drivers.
It also offers a $100 no-interest overdraft that allows cash-poor drivers to pay for their fuel at the start of the day and then work to pay it off.
Competition
The firm competes with other mobility apps for drivers in nascent markets, including Ola in India, and China’s Didi Chuxing.
This, matched with the proliferation of app-based mobility offerings in established markets including Bolt, French app Kapten and Lyft, means the strategy of promoting driver engagement with financial services to push out other apps could pay off in the long term.
Uber’s huge market valuation relies mainly on its future potential, as it continues to be non-profitable, with its growth and further funding rounds secured on the promise of market growth.
It is under shareholder pressure to devise other ways of making money. At the moment its financial services unit will contribute to operational profits, rather than making money through fees or interest; a service it can negotiate with its vendors because of its size. But it is likely that should it gain a large enough member base that this could be used as a revenue stream in the future to satisfy its investors.
As such, Uber is a part of the vanguard of venture-capital backed ‘challenger’ tech companies like music-streaming service Spotify or digital bank Monzo that face the challenge of transitioning from seed-capital funding to operating a sustainable business model of their own, and which are yet to turn a profit.
Uber shares a couple of challenges with businesses like Apple and Google. Firstly, how does it monetise its valuable assets, i.e. its driver and user database; and how can it engage with existing financial systems and regulation to make good old-fashioned profits. It will hope Uber Money is a step in that direction. At the very least, producing some investable financial data may help keep the wolves from the door - 2018 valuations put Uber’s value at $120bn; a year later estimates sit around the $72bn mark.
Driver finance
Uber Money has leveraged the value of its user base through financial products, albeit in a far cheaper way than its previous efforts in building driver engagement in the US.
It opened its own car leasing business Xchange Leasing in 2015 with a $1bn credit line, and invested in about 40,000 cars to lease to drivers who could not afford to purchase their own.
Many of the drivers who used the Uber leasing programme had very poor credit that prevented them from obtaining car finance from other providers.
But it was forced to close down its car leasing business in 2017. Poor residual value management saw it budget a $500 depreciation per vehicle, whereas in practice it lost $9k per car.
The FT quoted an Uber vice president Andrew Macdonald as saying at the time “Not every big bet we make is going to work”. Uber executives will hope that Uber Money will be less of a gamble.
While Uber has disrupted traditional markets to its advantage, the price of such innovation is that it is a business without precedent. Wth few benchmarks to work towards, it will make its own mistakes.
As questions over how gig economy worker rights such as Uber drivers and how much (or little) they are paid hover in the background, Uber Money’s venture into financial services may be curtailed by regulators looking to protect its drivers from being transformed into captive financial services consumers.