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Uber is reportedly hiring several dozen engineers and product managers in New York to assemble a fintech team, per CNBC, citing people with knowledge of the plan.
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Tapping into the finance talent pool in New York, Uber could grow its team to 100 employees. This news closely follows Uber’s IPO filing, which offered a glimpse into its massive card business, underscoring its potential to further establish a position in financial services.
Here’s what it means: This move is likely a play to better compete with Lyft for drivers, increase engagement within its own service ecosystem, and cut processing costs.
- Lyft offers financial products that allow it to retain drivers on its platform. Lyft offers services like Lyft Driver Direct, a rewards debit card and no-fee bank account for its drivers, both of which could be useful driver retention tools and that allow it to meet the needs of gig economy workers — a major segment of the US workforce.
- Enabling customers to access financial services from Uber can keep them engaged in its ecosystem.Uber sees about 87% of its gross bookings — defined as the total dollar volume across its services — made with credit or debit cards, representing a large addressable base that already stores their payment information with it.
- Uber can cut major costs associated with card processing fees.Uber saw $43.5 billion in card volume in 2018, and while it didn’t disclose how much it paid to accept cards in 2018, Uber paid $749 million in credit card processing fees in 2017, up 62% from $461 million in 2016.
The bigger picture: Uber could eventually mirror Southeast Asian ride-hailing giant Grab’s strategy and break out its financial services into a separate arm of the company.
Building a fintech team could allow Uber to diversify its streams of revenue and move the needle toward profitability. Grab is spearheading the movement of ride hailing into payments: Its services range from its mobile wallet, GrabPay, to an insurance and loan offering business, and many services in between.
Uber’s been more or less mirroring Grab’s strategy so far, with its Venmo partnership, a cobrand credit card with Barclaycard, a debit card for its drivers, and the recently launched Uber Rewards loyalty program. Currently, Grab is considering spinning off Grab Financial Group into its own business segment — it’s possible that Uber takes the same path as its payments services mature.
Building out a full financial services unit could take multiple forms for Uber:
- Uber could develop a bank account to save on interchange. Uber executives have reportedly been in "high level" talks about an Uber bank account, though it may be years away from happening. Operating its own bank account could allow Uber to cut out the middleman by paying drivers directly, while enabling customers to pay directly through Uber rather than with a credit card. That would effectively cut out the per-swipe fee charged by card issuers and networks, which typically come to 2% for credit card transactions and 24 cents for debit card transactions, costing merchants $90 billion annually in the US alone.
- Uber can use its partnership with PayPal to develop a mobile wallet. Uber received a $500 million private placement investment from PayPal ahead of its IPO, which could allow Uber to double down on its already comprehensive set of payments tools and develop new ones, like a digital wallet. Ride-hailing apps are particularly well suited to build out payments offerings because they typically have access to a large and engaged user base, which they can easily cross-sell on other services: Uber counts 93 million users across its ecosystem who it can upsell payment products to, in addition to its drivers.
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