From bikes and cars to buses and trains, the people at Uber envision their role as a central force in the future of getting from Point A to Point B. CEO Dara Khosrowshahi himself suggests the company’s ambition is to integrate itself directly into the heart of the global transportation matrix at every level.
“The future of Uber couldn’t be just about cars … we had to expand our scope from cars to broader mobility,” he recently told The Verge.
But as ubiquitous as Uber may seem, especially in densely populated cities, it still has yet to turn a profit as of 2019. Despite remaining in the red, the company operates with 70 percent of the market under its control. This led to the company receiving an $82 billion valuation with their IPO earlier this year.
So, where’s the value prospect to justify this valuation? Well, let’s just say it’s not limited solely to Uber’s present domains of ride hailing and food delivery.
The company’s leadership recently announced plans for their burgeoning fintech division, including a new office in New York and several dozen hires by the end of this year. The company projects that their fintech workforce will quickly swell to over 100 engineers and product managers.
Clearly, the company has some incredibly ambitious goals. Expanding into their own range of fintech products will make achieving them much easier in the long run.
Why Uber is exploring fintech
Incorporating fintech products into the company’s offerings might seem like an unusual move. It makes sense, though, as part of their broader strategy for expansion.
Take the cost of processing payments, for instance. This expense often goes overlooked, but it adds up quickly: Uber paid $749 million for credit card processing privileges just in 2017 alone. Every ride and each individual charge carry fees. If the company wants to expand into a global transportation company, that will quickly escalate into billions of dollars spent every year. By developing their own fintech products, though, Uber can reduce or even eliminate these and other costs, not only saving revenue but also enabling further investment in other areas.
The company’s fintech offerings will create opportunities for both drivers and riders using the platform. One possibility proposed for Uber’s products is a service to help drivers better manage their earnings. This could become especially valuable for users with limited access to conventional banking services. Uber might even help drivers manage their retirement savings and other investments.
The company also explored the idea of helping drivers finance cars. If successful, this could create a much wider user base for the platform, thus growing the brand significantly. Uber’s long-term plans regarding self-driving vehicles could impact this plan, though, making “drivers” on the platform largely obsolete within the next decade. The company’s trajectory, as well as the success of their moves to evolve beyond ride hailing, will determine how this pans out.
Balancing convenience and security
Everyone who makes use of the platform, both riders and drivers, have three main demands:
A convenient, easy-to-navigate user experience with minimal friction
A customizable approach that caters to the individual user’s needs and preferences
Access to a platform on which their data security and privacy have high priority
Delivering on all three of these demands is a tall order. In fact, they may even seem contradictory in some regards. The fast-changing nature of the payments and fintech space further complicates matters.
Failing to deliver in any of these areas, especially security, risks losing consumer trust. Data vulnerabilities — and the fraud attacks they enable, such as fraudulent purchases, synthetic fraud, and account takeover attacks — deal incredible damage to consumers’ trust in brands. Once that trust is gone, brands will find it very hard to win back.
So, Uber and other companies looking to make similar moves need to live up to users’ standards. The question: Can companies deliver on convenience and customization, without sacrificing consumer security and privacy and exposing users to fraud threats?
For one, Uber can instill confidence by clearly outlining users’ rights, protections, and liabilities. Take chargebacks, for instance; although often abused and used as a tool to commit fraud, chargebacks remain an important consumer protection mechanism. Even if fintech brands aren’t required under law to provide some means of resolving disputes as credit card companies are, it’s still a wise idea to adopt such a policy. Telling consumers “you’re on your own” when they fall victim to fraud erodes trust quickly.
Consumers are curious about fintech tools, but they’re not going to offer their confidence without guarantees from brands regarding security and usability. Uber will need to not only talk about their commitment to protecting customers, but also actually demonstrate this before they can win over users. If they can’t do this, then the future for their fintech prospects — and their role at the center of our transportation nexus — won’t look good.
Jeannette Kescenovitz, who leads development of banking-as-a-service at Finastra, joins us on the BAI Banking Strategies podcast to share her views on how BaaS might grow its presence at U.S. banks and credit unions this year.
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