Uber announces deeper push into financial services with Uber Money and Understanding its threat to the financial industry

CNBC | Hugh Son | Oct 28, 2019

Dara Khosrowshahi CEO Uber - Uber announces deeper push into financial services with Uber Money and Understanding its threat to the financial industryKey Points

  • The ride company announces a new division called Uber Money, which includes 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.

  • Uber could one day offer a bank account to consumers on its platform, according to Uber Money head Peter Hazlehurst.

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.

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.

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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.

Cash-strapped drivers

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.

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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?

“I think so,” Hazlehurst said. “The reality is that the needs of our partners in the U.S. and in Brazil and in Australia and in India mirror in many ways the needs of consumers as well, particularly in the cash-heavy economies. And the opportunity that we have is to expand to help all of those people have access to financial services.”

One advantage Uber has over other new entrants into banking is its massive scale, which allows the company to negotiate better deals with vendors, he said. “We don’t have to take the traditional fee income model to operate these services,” Hazlehurst said.

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Understanding Uber Money its threat to the financial industry

Future of Finance | Lex Sakolin | Nov 4, 2019

Uber has entered finance! The end is nigh! The boogeyman is here!

Oh. So what's involved? There's a debit card and a "debit account" powered by Green Dot, the same bank that's behind Apple Pay's person to person service. That means that Uber isn't a bank, but is renting shelf space on one. There's a wallet that will be integrated into the Uber app, within the driver's experience. So tracking your earnings and spending will be a feature that is part of the app -- not unlike what Amazon has had for years for merchants. There is a credit component, letting drivers withdraw money against their payckeck. And there's a Barclays credit card, private labeled for Uber, riding on the VISA rails.

Hear ye, hear ye, beware the disruption and tremble under its glory!

So maybe you can tell I am not terrified of this offering, as it relates to the position of banks in the world. But it would be a mistake to underestimate it, and in particular, to miss the various trends that are pulling this together. One lens to understand these developments is the Gig Economy theme. The 2008 Great Recession created high levels of unemployment across the world, and the technology sector was ready with solutions. It is expensive to have employees – they have all sorts or rights, like the ability to organize and the expectation of health and pension benefits. On the other hand, contractors have no such expectations and can be hired and fired at will. To that end, contracting gig websites – from home repairs, to deliveries, to driving pseudo taxis – sprouted like flowers after a fresh rain.

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The issue with lots of part-time work, other than being a psychological nightmare for people that want full-time work, is that you lack the benefits and stability employers provide. In the nonsense world of the United States, employers are responsible for worker healthcare and retirement, and compete to provide such benefits. One could reasonably expect that such social benefits should come from society, but that’s a topic for another day. So when you take away employers, and replace them with venture blitz-scaling start-ups like Uber, the end result is a lot of people who have earnings volatility, a lack of access to traditional financial services, an inability to buy a home under a mortgage, a lack of affordable health care, and a variety of other monsters.

No good pain point is left unserved, however. A number of neobanks have been formed to help with exactly these problems, across categories. The examples below, including Oxygen and Joust, offer a full financial solution for contractors. This includes accounts and consumption smoothing through credit, but it also includes things like merchant gateways and other enabling small business and freelancer technology. Uber's entry point into finance is first and foremost competing with companies like this -- the teams trying to build good financial offerings for those with a contractor's set of problems. And these are more fully featured apps, though they are less tightly coupled and not integrated directly into Uber's experience.

If these targeted gig-banks are too niche from your point of view, we can then just highlight the US neobanks that focus on the same income/wealth demographic. The killer feature for those is credit, not information or aggregation. See Chime or MoneyLion below, with millions of customers each. Who doesn't want to get free money every week? The pro-Uber argument you could make is that Uber has advanced data on its drivers, like Amazon for its merchants. Amazon can better underwrite merchants, because it knows the web traffic to their pages on its own marketplace, and the conversion rates into purchasing a product. Similarly, Uber can project out the trips an individual driver will likely experience in their location based on the massive data set, and use that to adjust the underwriting model. But still, there is real competition.

See: 

Another lens you can take to analyze the offering is by looking at personal financial management companies that focus on the employer. Two examples come to mind, though there are countless available. Hello Wallet was a fintech start-up focused on helping employers provide a Mint.com-like benefit to employees, with the concept that financially healthy employees are better at their work. You can see the screenshots below. The company was sold to Morningstar for about $50 million, and then sold off again to KeyBank. The largest analytics company was not able to sufficiently commercialize the data/analytics play, and divested to a bank, for whom PFMs are more core and strategic. Times change certainly (e.g., Plaid vs. Envestnet), but this commercialization challenge remains real. Further, Uber is just a single employer, albeit with 3 million drivers, while these PFMs had targeted a broader market.

Think also about Financial Engines. One of the original digital wealth management companies, FNGN was started in the early 2000s (way before you, Wealthfront) to target corporate workplace programs and sit on top of 401(k) retirement providers. It helped employees make better investment decisions, and focused on the place most of us actually make that investment decision. FNGN was eventually combined with the Mutual Fund Store (a store! of mutual funds!) and Edelman Financial to create a $200B+ assets under management player. Could Uber roll out a meaningful competitor? Can it offer a digital financial advisor that moderates between investments, banking, and credit to Uber drivers? Yes, but remember that for most of the drivers, the key issue is to have enough money for rent during the middle of the week.

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