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Ride-hailing giant Lyft announced “Lyft Driver Services,” a new set of affordable tools for drivers, including financial services like a no-fee bank account and debit card, as well as discounts on rental cars and vehicle maintenance, according to CNN Business.
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This move comes ahead of Lyft’s upcoming initial public offering (IPO), which is anticipated to happen as early as this Friday, and can be an smart strategy for the firm both attract and keep drivers on its platform.
Here’s what it means: Attractive financial services offerings can be an effective tool for Lyft to retain drivers, while allowing it to compete with ride-hailing companies offering similar rewards.
- The debit card offers rewards on everyday spending like gas, which can be attractive to drivers. Lyft’s no-fee bank account was developed in partnership with Oklahoma-based Stride Bank, and the debit card offers cash back on purchases across categories, including 4% cash back on restaurants, 2% cash back on gas, and 1% cash back on groceries. The account will remain open even if a driver stops driving with Lyft, and the ability to earn rewards on a debit card through everyday spending category could compel Lyft drivers to stay with Lyft.
- Lyft’s move comes as ride-hailing companies launch similar products.Last year, Uber partnered with GoBank to launch the Uber Visa Debit Card, a debit card geared toward drivers and deliverers that rewards everyday purchases for things like gas and groceries, for example. Additionally, ride-hailing services globally, like Grab and Go-Jek, have been launching their own financial services, with the two industries becoming increasingly linked.
The bigger picture: Lyft’s new services can promote financial inclusion and attract drivers looking to access affordable financial tools.
- The account could promote financial inclusion and make funds accessible immediately, which can address a pain point with gig economy jobs. Twenty-five percent of the US population is un- or underbanked, and 78% of people in the US are living paycheck-to-paycheck, which could make a real-time solution integral to their financial stability. That’s particularly true for the gig economy, as workers want access to their funds faster.
- Debit rewards are rare, which can make the offering especially compelling. Lyft is rewarding drivers for purchases they’d be making anyway, such as gas and groceries, which could incentivize Lyft drivers to sign up and in turn could be a good retention tool for Lyft. Further, offering a rewards debit card could attract drivers, as debit reward offerings are few and far between.
- But it’s important that Lyft balances the high costs associated with offering rewards with driver acquisition and retention. Offering attractive rewards can be extremely expensive: JPMorgan Chase had the highest rewards spending since 2016, due in part to its premium Sapphire Reserve card, which caused the firm to lose $900 million from "card-related headwinds" in 2017 alone, for example. But if its rewards strategy is effective in bringing in more drivers, it will ultimately lead to more business and can boost Lyft’s already high volume: Lyft drivers collectively provided more than 1 billion rides since Lyft launched in 2012.
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Source: Business Insider – feedback@businessinsider.com (Rachel Green)