Five days ago, global ride-hailing giant, Uber, announced the addition of a new payment feature to its app for users in Africa. However, this is the sort of development that would’ve gotten Uber drivers bummed as much as it got Uber and its users pumped.
Uber Cash, as the new payment method is called, is being touted as a convenient payment method, and it probably is.
It is basically a wallet within the Uber app; users can fund this wallet through bank cards or digital wallets at their convenience, and then pay for their trips and even pay for food ordered from Uber Eats from the funded wallet within the app.
Typically, Uber users use cash and bank cards to make payments for using the platform. With Uber cash, Uber is looking to bring more convenience and flexibility; such that users don’t have to scramble for cash or whip out their cards every time they use the service.
The new payment method is kind of a win-win for everyone — well, everyone except drivers/partners on the platform it seems. And why’s this? For starters, Uber Cash, by its very nature, is bound to affect driver cash flows.
Over the years, Uber has become a global company by sticking to its play of scaling to new markets in developing economies.
The problem is, in these parts, Uber is confronted by the challenge of adapting to local payment options, which are quite different from what is common in the developed economies where the company first launched.
In the U.S., Europe, Australia, and the more developed parts of the world where Uber has a presence, having a bank account or a line of credit is almost as common as having a name. In those parts, almost every Uber user has a bank card that they can link to their Uber account and use to pay for trips.
In less developed markets like Africa, there is a significant unbanked/underbanked population. In these parts, bank accounts and cards are not as common as they ought to be to make card payments popular and seamless. Instead, in these parts, cash is king and the mobile digital wallet is his queen.
This means that, in markets like South Africa, Kenya, Nigeria, Uganda, Ghana, Ivory Coast and Tanzania where Uber is now rolling out Uber Cash, Uber users tend to pay with cash and, to a lesser extent, cards.
However, Uber drivers in these African markets aren’t exactly big fans of cards or anything that isn’t cash. In fact, it’s a common occurrence for Uber drivers in these parts to decline trips in instances where the user is only able to pay with their card. Some drivers even go as far as offering to make stops so that the passenger can withdraw from an ATM and pay for the trip with cash.
Now, with Uber Cash in the picture, it appears there’s a new nightmare for drivers, and here’s why.
How money moves on Uber
Generally, users pay for their trips on Uber through cash payments to the driver or, in some African countries, via mobile money straight to the driver’s mobile money account.
In some cases, Uber users make payment automatically using their personal or company cards (debit or credit) linked to their app.
When users pay through the Uber app linked to the card, the money first goes to the company (Uber) account, before it is eventually disbursed to the driver through a sharing formula, such that Uber keeps 25 percent of the amount as commission and the driver/partner gets 75 percent.
The issue with card payments is that it might take up to a week or even more before Uber pays the driver his/her share of the split proceeds. This payment is done only after all the necessary reconciliations and calculations have been done. Thus, the reason drivers prefer cash.
When users pay with cash or mobile money to the driver, it is the Uber driver who has to send money to Uber the company, because they are holding the company’s share of the revenues as cash or funds in their mobile wallet. Drivers tend to want to have it this way because, in this case, they don’t have to wait a week or more before they can get their money.
Obviously, Uber keeps a record of all the trips and all the proceeds, so the company knows who has to pay it what, or who it has to pay what.
Interestingly, cases of delinquent drivers failing to handover Uber’s share are quite common. It is even known that Uber has had to write off some of those outstanding amounts in the past.
In principle, due to cash outweighing cards in these parts, the driver almost always owes Uber. Uber uses its bank accounts to facilitate the collection of the 25 percent commission from cash/mobile money payments with direct debit instructions. Failure commonly leads to the temporary blocking of the driver’s profile such that they can’t get passengers.
Indeed, blocking the accounts of delinquent drivers is the most common way Uber pushes drivers to pay the outstanding amounts from trips paid for in cash or mobile money. In some cases, drivers settle outstanding amounts by working corporate and card trips.
How Uber Cash would affect drivers
Although Uber has refrained from explicitly stating it, the newly-launched Uber Cash option would certainly help the company to deal with some of the problems associated with the collection of commissions, as it puts all the funds in its hands when users fund their Uber Cash wallet.
“For example, in Nigeria, you can use your Verve Card or mobile money. In Kenya, you can use M-Pesa and EFT (electronic funds transfer), and in South Africa, you can top up with EFT,” said Alon Lits, Uber’s General Manager for Sub-Saharan Africa, when explaining how users can fund their wallets and pay with Uber Cash.
Uber cash allows users to pay directly to the company whether they have card, mobile money, or other local payment options. With Uber cash, users can now prepay with any local EFT option into an Uber wallet that sits within the app, instead of directly to the driver.
With ongoing coronavirus pandemic meaning that the usage of physical cash is being discouraged in a country like Kenya, for example, where mobile money is quite popular, Uber users have increasingly turned to payments with the ubiquitous M-Pesa and other mobile money platforms. These mobile payments still end up in the driver’s hands.
However, the coming of Uber Cash changes things such that drivers are put in an unfavourable position. If widely adopted, the new payment method will effectively deny Uber drivers all the money they would ordinarily receive via cash and mobile money.
Drivers will, instead, have to wait for 7 days or more for Uber to reconcile payments and pay them their dues. The impact of Uber Cash on drivers’ cash flow is certainly a cause for concern and it will be interesting to keep an eye on how this development unfolds.
Featured Image Courtesy: Nikkei Asian Review