6 keys to Uber, Grab and Lyft's innovations in payments

Published
  • August 03 2018, 11:18am EDT
While mass transit has long been seen as a potential catalyst for changing payment habits, it's apps such as Uber, Grab and Lyft that are making the biggest difference in how people pay for transportation.

The ride-sharing companies are also rapidly adding partnerships with recognizable global brands and attracting hefty investments.

A $1 billion cash Grab

Grab on Thursday announced a $1 billion investment, which follows a separate $1 billion investment from Toyota two months ago. The new round includes Ping an Capital, OppenheimerFunds, Macquarie Capital, Mirae Asset and Cinda Sino-Rock Investment Management. The Asian ride-hailing app has used its heft and capital to build a financial services empire, including a digital wallet and developer tools for other companies.

That arguably puts Grab ahead of mainstream transit payments and travel ticketing as a way to change consumers' habits in how they pay. Transit payments have long drawn attention because they are a closed system where the processes and fees are tightly controlled; introducing new technology in those settings can be more straightforward than trying to get someone to download a mobile wallet for impulse purchases.

From ride hailing to 'super apps'

Uberization has become a term to describe a migration toward a no-touch checkout experience, a level of easy nickname recognition that Transport for London doesn't share, as advanced as its open loop contactless payment system may be.

"This is all tied to the greater trend toward super apps," said Michelle Evans, global head of digital consumer research at Euromonitor International, adding these apps combine all aspects of a consumer's world into a single platform. "Consumers, especially those in Asia Pacific, have embraced these all-in-one apps because they offer a contextualized and cohesive experience."

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From startup to pseudo-bank

Grab dates to 2012 as a taxi-hailing platform, and it quickly diversified. Grab is used about 5 million times per day and has grown to 90 million users in four years. That's a treasure trove of pre-enrolled users and payments data.

Grab launched a mobile wallet in 2017 as a merchant acquiring tool, and at around the same time the company acquired iKaaz to support contactless point of sale payments. These moves further allowed Grab to support P2P, bill payment, mobile and retail payments. A relatively new line of business, Grab Financial, takes the model further into lending and other services close to banking, turning Grab into a sort of Square on wheels. Grab is quickly building a channel to integrate incentive marketing for food and other retailers.

Ride-hailing services such as Grab reach an audience that needs financial services beyond the payments over the ride hailing service, according to Eric Grover, a principal at Intrepid Ventures. "In the U.S., consumers and small to medium enterprises are already well-served by traditional financial institutions and have plenty of choice," Grover said. "In Southeast Asia the [financial services] market … is less developed and consequently there's a very attractive opportunity for players like Grab."

A daily task becomes a platform for financial services

Many of these super apps took root in one of two domains — messaging and transportation — according to Euromonitor's Evans.

"These are functions that inspire regular, if not daily, activity," Evans said. "Platforms like Grab continue to diversify and add more services to their initial platform because it will keep users signed in and likely attract new ones to the platform."

Grab has pulled ahead of Uber, particularly in Asia, where it has acquired Uber's ride-hailing business. But Uber has also made an impact on companies that wish to replicate its "silent" transaction experience to collaborations, including Venmo, Barclays and Amex. Uber's influence can even been seen in Amazon's cashierless Go store and startups selling similar innovation to traditional retailers.

Drivers' payments matter too

From the consumer’s perspective, the most important task for Lyft is delivering a ride, not taking funds. Thus, there are many ways to determine a rider’s eligibility to pay without charging them; because Lyft allows riders to add tips and split fares after a ride is complete, it can even be beneficial to the company to delay collection of funds.

But drivers need cash right away to cover their own costs, including gas while they are still on the road.

“There is a compelling need today to solve this. We are faced with it on a day to day basis and we have been faced with it for years,” said Ashwin Raj, Lyft’s vice president of payments, in a presentation at SourceMedia’s annual PayThink event last year.

“My driver who needs to pay for his gas to provide the next drive cannot wait for Same Day ACH. They need those funds immediately,” he said.

For them, the best option is Express Pay, Lyft’s branded version of Visa Direct and Mastercard Moneysend, which operates via debit card transactions. Express Pay “has become such a significant part of our services that the majority of our drivers are using it” to receive funds within 30 minutes, Raj said.

“It’s a good story so far, but there is a ‘but,’” he said.

Express Pay works only for drivers who enroll a debit card, rather than a prepaid card or a bank account number. There is no near-real-time option for drivers who do not have or do not want to use a debit card; for them, the best option is standard ACH.

“We can’t say to a driver, ‘You have to put in a certain instrument to get your funds,’” Raj said. “That is the problem we’re trying to solve for.

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Brand power

The success of both Uber and Grab is they have not only encouraged a change in consumer habits, but have built famous brands. That requires merchants to respond, invest in or partner with either or both companies.

"The bigger play here is how the on-demand economy has reached escape velocity with consumers," said Raymond Pucci, associate director of research services for Mercator, who likens ride-hailing to mobile order and pay apps that have proven popular with quick-service chains such as Starbucks, meal delivery apps such as Grubhub and short-term home rental Airbnb.

"The common attributes that tie these together to drive consumer demand are they are app based, have seamless payments, are convenient and are usually immediate," Pucci said.