Uber’s Fintech Strategy: A Conversation With Peter Hazlehurst, Head Of Uber Money

OBSERVATIONS FROM THE FINTECH SNARK TANK

At the recent Money 20/20 conference, Uber announced Uber Money, a new division within the ride-hailing firm. Afterwards, I sat down with Peter Hazlehurst, Head of Uber Money, to discuss the new features and improvements which include:

• Real-time earnings. Uber announced that drivers and couriers will have immediate access to their earnings after every trip instead of waiting for weekly payments or cashing out through Instant Pay.
• Debit account and card. The company is integrating its Uber debit account, provided by Green Dot, into the Uber Driver app. Cash-back on gas purchases start at 3% and go up to 6% for “Diamond” tier drivers.
• Mobile wallet. The updated Uber Wallet will enable earners to manage and and move their money in one place, and will start rolling out in the Uber Driver app in the next few weeks.
• Credit card. With the relaunched Uber credit card, cardholders will receive 5% back in Uber Cash from spending across the Uber platform, including Uber Rides, Uber Eats, and JUMP bikes and scooters.

A Deeper Look Into Uber’s Fintech Strategy

We also spoke about Uber’s broader fintech strategy regarding:

• Banking underserved drivers. According to Hazlehurst, 60% of Uber drivers go negative on their accounts six times a month. That might not be an issue with the new Debit account: if those drivers make enough trips, overdraft fees will be waived. Uber is also participating in a BlackRock initiative looking at how to motivate people (i.e., Uber drivers) to save.
• Remittances. Hazlehurst said that some Uber drivers send up to 25% of their income back to their home countries. With Uber’s international presence (i.e., global treasury operations), the firm is well-positioned to provide money transfer services directly through the driver app.
• Lending. Hazlehurst told me that lending isn’t on the road map right now, but that the firm is testing microloans. It’s just a matter of time before Uber is lending. Similar to how Amazon uses cash flow data to determine which merchants to make cash advances, Uber Money will use data about drivers’ income and cash flow to make smart lending decisions.

Uber Money is a Winner

Unlike so many other fintech startups getting adoring attention (and untenable valuations), Uber Money is going to become a force in financial services. Uber is in position to capitalize on two trends:

1. The rise of the gig economy, and
2. The emergence of headless banking.

Banking the Gig Economy

The Gig Economy Index™ estimates that nearly 40% of the American workforce makes at least 40% of their income via gig work, and that 55% of gig workers also maintain full-time or "regular" jobs.

These workers have unique banking needs that distinguish them from other consumers including: 1) Inconsistent and/or unpredictable income patterns; 2) Credit needs; 3) Health (and other) insurance needs; and 4) Tax requirements. I'm sure gig economy workers could add to that list.

Slightly more than half of rideshare drivers are 30 to 49 years old, and a third are either African-American or of Hispanic heritage. Nearly four in ten Uber drivers rely on the rideshare service for the bulk of their income.

This is the bulls eye of Uber's financial service target market: The older Millennial or Gen X, non-white driver who relies on the service for his income, with unmet insurance (47% of drivers don’t have rideshare insurance) and borrowing needs.

The next ring of the Uber bulls eye are the nearly one in five Uber drivers who, in addition to driving for Uber, have other gig economy jobs.

Outer rings of the bulls eye contain other drivers who rely less on Uber for their income and non-Uber driving gig economy workers, but who may still benefit from insurance or loans provided by the rideshare service.

The Emergence of Headless Banking

Although there is a growing number of startups (not all “fintech”) serving the gig economy, many will come up against a trend which will hamper their–and traditional banks’–efforts to serve this segment: Headless banking.

The term “headless computing” has gained some currency recently. From a software perspective, it applies to an application that doesn’t have its own interface, but is embedded (for lack of a better term) in a host application.

Headless computing is emerging in banking on two fronts: 1) Headless banking applications embedded in other consumer- or user-facing applications, and 2) Headless banking applications embedded in internal bank systems and applications (for example, a compliance application embedded in an account opening system).

Uber Money benefits from both fronts:

• User-facing apps. It’s a good bet that the Uber Driver app is frequently used by drivers–and will be used even more with the newly-launched features. Other fintechs and banks looking to serve gig economy workers are disadvantaged if they’re not embedded in the apps frequently being used (e.g., Fiverr, SpareHire, Care.com).
• Internal apps. Uber already has a global treasury operation that manages and moves money around the globe. Embedding those internal capabilities into the user- (i.e., driver) facing app for money remittances will give Uber an advantage over other providers.

Uber Money’s Business Model

Uber's financial services opportunity is providing a wide range of services to a relatively narrow segment of consumers—first to its drivers and then to other gig economy workers. Attracting mainstream consumers isn’t a condition of success for Uber Money.

It’s great (for consumers) that neobanks are falling over themselves telling the world they don’t charge fees. At some point–unless they sell out–they’re going to have to make money. The path to lending won’t be an easy one.

Uber Money, on the other hand, has a path to revenue. Its pricing strategies–lower fees and interest rates on loans to drivers who make more trips–will help grow overall trip volume. And its data about drivers’ cash flow and income will enable smart–and fast–lending decisions.

Uber Money will succeed where other fintechs have failed because it has a business model.

Ooh! It feels so good to use “fintech” and “business model” in the same sentence.