Uber borrows Amazon's most alarming payments feature

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Uber’s latest app update adds a stored-value account that incentivises riders to dive deeper into the Uber ecosystem — and away from their bank or mobile wallet provider.

The setup is reminiscent of a rewards program Amazon introduced a year ago called Amazon Prime Reload, which provides 2% cash back when shoppers use a debit card or bank account to load an Amazon stored-value account. The Uber Cash feature, announced Wednesday, provides up to a 5% discount on rides or Uber EATS orders by preloading value to the Uber app.

The benefit to the merchant is substantial: It binds the user into the provider's broader ecosystem (Amazon Prime Reload requires an Amazon Prime membership) for captive spending, and in Uber's case it reduces operation costs on smaller-ticket ride purchases, which are growing in some segments with industry competition.

For example, for lower-cost ride options like UberX, Uber Pool and the company's new Jump electric bicycle rentals growing, transaction fees represent a higher proportion of Uber's total payment cost, and Uber can cut costs by eliminating the fees through aggregated payments, Uber said.

Uber Cash is more than an imitation of Amazon's cash back rewards. Uber is known as a trailblazer of the gig economy, in part for making payments as invisible as possible for riders and drivers. Uber Cash now serves as a funding hub for other Uber payment activities within the app, including buying gift cards and redeeming local offers and Uber Visa Card points, and enabling users to pay for other Uber services including bikes and scooter rentals in some cities.

By creating an ecosystem for users to load, redeem and pay for various services with the app, Uber has created a veritable digital wallet with the opportunity to build a war chest of stored-value cash.

For Uber — which reported a slight slowdown in revenue growth last month — there's a clear need to make its app more sticky and expose more riders to its full range of services. If successful, Uber could recreate the Amazon Prime effect of getting consumers into its system for one perk (i.e., two-day shipping or an exclusive TV series) and then piling on incentives and services to keep them engaged.

During a pilot, riders liked the stored value option for the discount and additional control. Uber users select Uber Cash in the same way as any other form of payment, with the option to fund it using credit, debit, PayPal, gift cards and Venmo.

"Consolidating spend into one item on their credit/debit card statement was more intuitive and helped people better track their spend," said Rob Daniel, Uber's financial products lead.

Uber also faces pressure from within the gig economy. Grab, the Asian ride-hailing company whose mobile app launched in 2017, supports broader payment and funding options including P2P, bill payments, mobile and retail payments.

Uber has had significant success with its Instant Pay service for drivers—also provided by with other ride-hailing services like Lyft—giving cash-hungry drivers immediate access to funds throughout the day via debit push payments.

Uber notes that users of the Uber Visa card may earn points by refilling their Uber Cash balance as the funding source. That card, issued by Barclays, enables riders to earn points on non-Uber spending and redeem the rewards for purchases within the Uber app.

By providing multiple Uber-sanctioned payment options, Uber could draw customers away from the likes of Apple Pay and Google Pay, which provide the ride-sharing providers with little of the customer data that they crave.

The Uber Cash stored-value feature could also add further efficiency for Uber if it cuts a favorable deal with the likes of Chase Pay—as Starbucks has done—to lower the cost of consumers loading funds to the app from certain payment cards.

“Starbucks essentially created a new tender type with the stored-value feature of its mobile app, which has generated billions of dollars in prepaid revenue,” said Richard Crone, a payments industry analyst and Starbucks watcher.

Uber is working with Bancorp to issue and secure funds within Uber Cash, the company said.

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Mobile payments Prepaid cards Gig economy Loyalty and rewards Uber Amazon