Control The Flow Of Money. It’s one of the latest collective missions of Big Tech. From Apple’s digital wallet to Facebook’s cryptocurrency to the automation of personal finances and even Amazon taxing nearly everything that happens on the Internet. This is the vertical that tech companies with resources are vying for. And now, out of left field, Uber is going deep into financial services.
The company announced 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.Dara Khosrowshahi, CNBC
Uber is rolling out globally a debit card with an enhanced “instant pay” service. The feature has taken off in the U.S, with more than 70% of driver payments made using instant pay. It is essentially a no-fee banking account, with the debit card in the U.S. linked to an account provided by Green Dot.
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.
On the surface, this move will lead to:
- Faster transfers to drivers
- Better transparency with their customers over payment disputes/cycles
- Lesser fees by cutting the financial middlemen (other banks)
Dig a little deeper, though, and you’ll find a greater mission. The mission to create a digital wallet “For The People”. And by “The People”, I mean the middle, lower-middle, and lower classes.
Uber Wallets For All
The digital wallet is widely believed to be the next big innovation in finances. Take everything you have in your physical wallet – credit cards, cash, loyalty program cards, gym membership, gift cards, etc. – and transition it to a digital version on your phone. Digital wallets would increase security, transparency, convenience, efficiency, and innovation of everyone’s finances. That’s the idea, at least.
Apple’s making big moves to create the digital wallet for everyone above the middle class. The Apple brand is one of high price points and elite status. The Apple Card signifies rarity and luxury – not practicality. Their brand, and thus their digital wallet, is for the type of person that doesn’t miss payments and can count on regular discretionary income.
On the flip side, look who Uber has partnered with. Green Dot.
Uber could’ve partnered with any bank, lender, or credit service they pleased. Morgan Stanley, Goldman Sachs, and BofA Merrill Lynch underwrote their IPO. Visa runs their entire in-app rewards program. Still Uber chose Green Dot.
That’s because Uber is creating The Digital Wallet For The People. A digital wallet for everyone else.
Green Dot is a credit card geared toward the low-income earner. They filled a gap where Capital One, American Express, and Chase were overlooking.
Uber employees aren’t making what is advertised. The median wage for UberX drivers (which are 75% of their drivers) is $13.70 an hour. With around 20% allocated to car expenses, that comes to $10-11 an hour (and there are a lot of people earning much less).
Green Dot and the average Uber employee are actually a fit.
These payment innovations highlight the reality that many in the gig economy are struggling to make ends meet.Dara Khosrowshahi, CNBC
All the more reason to provide a more advanced Digital Wallet, giving financial services to their employees who need it the most – just as Green Dot provided responsible credit for those who needed it the most.
The Uber Card is going to give these folks 3% back on dining/hotels and 1% on everything else. The Uber Wallet will give them instant access to their funds and a virtual bank. Most importantly, they get simplicity. Their income stream will be in the same place as their spending statements and analysis.
In one clean sweep, Uber will provide financial services to all of their check-to-check employees. So how will they expand their Digital Wallet For The People to other low-income workers?
Growing Down the Road
Brand is so important in financial services. And Uber’s brand is accepted across nearly all demographics. At the high end of the financial spectrum, people take UberBlack everywhere. On the low end of the financial spectrum, people (or someone close) drive for Uber. This makes it far easier for Uber to partner across the financial spectrum on their digital wallet.
Partnerships, therefore, will be Uber’s primary way of growing the Uber Wallet.
Five to seven years out, I see them being a powerhouse here. Uber’s value proposition is to provide an inroad for bigger brands to customers that live check-to-check.
Take, for instance, Verizon. Telecom billing is going to integrate with digital wallets eventually. All bills, for that matter, will exist in the digital wallet.
With the Uber Wallet, though, Verizon can reach the Uber drivers that might normally only be able to afford a MetroPCS service. Uber and Verizon come to an agreement on what a low-income Uber driver can afford for a telephone service. And bam! Verizon offers the deal to them only in the Uber Wallet.
Uber Wallet will be a perfect acquisition channel. This same example above can be applied to all brands that don’t normally reach the low-income earner: Target, Chase Bank, Ruth’s Chris, Hilton, etc.
That’s how Uber Wallet grows in the United States.
Internationally, these financial services are mostly designed to help bring the rider-driver relationship into the digital world.
About 40% of all Uber trips globally are paid using paper currency. 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.Dara Khosrowshahi, CNBC
On the international front, Uber Wallet will win by acting more as a bank than it does a financial adviser.
Overall, the fight for digital wallet supremacy has barely even started. It’s a long transition coming that will favor the strategic movers, not necessarily the first movers. If Uber is using financial services as a means to get profitable quickly, this plan will probably fizzle out. If Uber is using financial services as a long-term strategy, then I think the above plan is the route they will take.