Why Uber, Grab are taking bigger steps into fintech

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The ride-sharing heavyweights Uber and Grab built their markets by making payments seamless, and their expansion plans are similarly hooked into improving payments and other financial services.

While Uber and Grab are seen primarily as ride-sharing companies, they have a far greater opportunity to expand into fintech and financial services than to focus only on new modes of transportation. Riders and drivers interact with their apps regularly, and their transportation needs often dovetail with their financial needs.

Grab, which launched its own financial arm last year, is teaming with Citigroup to offer a cobranded card; while Uber plans to hire a team of fintech experts in New York to build new payment features and potentially develop deeper financial services such as a bank account. Uber launched its own cobranded card, issued by Barclays, in 2017.

Uber and Grab are becoming blueprints for how companies with robust technology platforms or large user bases are trying to enter new markets, said Raymond Pucci, director of the merchant services practice at Mercator.

"The usual scenario is the partnering companies have customer bases that can be cross-sold," Pucci said, adding that a good example is the Apple Card partnership with Goldman Sachs. "Apple has a large loyal user base. Goldman has an interest to expand into consumer markets and Apple looks to expand into services."

Uber and Grab want to use their huge enrolled bases to launch other services with local competitors on their heels — Asia's Grab has Go-Jek, among others, and U.S.-based Uber has Lyft. Uber and Grab both have ambitions to use their core ride-sharing services as portals to everything from food delivery to hotel booking to a full-fledged digital wallet.

Each has the enrolled base to feed that opportunity. Grab has about 95 million users, according to CNBC, which also reports Uber has about 93 million users.

But Uber is still not profitable, and its revenue has been flat for the past few quarters. And Grab operates in many regions in Asia that do not have robust digital financial services. Grab has also faced complaints about its design and user experience as it has diversified.

Citigroup and Grab did not return requests for comment. Citigroup would give Grab a card-issuing partner to link the ride-sharing app's increasing range of services to a bank account.

“If you put money in Grab, there are merchants that accept a Grab balance, and there’s also P2P possibilities,” said Richard Crone, a payment consultant. “So Grab needs funding access for traditional bank accounts, because cash is still king in many of these markets.”

Grab in many ways has passed Uber in terms of technology by offering a fintech sandbox for third-party developers. Grab's financial services strategy has also progressed, offering products such as insurance. Grab has also made an investment in Oyo, a Singapore-based hospitality company. Grab additionally has an existing prepaid card partnership with Mastercard.

Mastercard and Citi give Grab an international payments and banking network to serve drivers' needs and to link accounts to consumer-direct services like hotel payments or reservations.

“Grab needs access to electronic funding to drive its ecosystem,” Crone said. “It needs to get a prepaid balance into accounts.”

Uber’s nearly invisible payment experience has influenced other companies that want to replicate this model. But Uber is also challenged to build more technology to support its newest use cases.

In the past few months, Uber has added leasing for drivers who don’t own a car, partnered with Adyen for PSD2 compliance and expanded its transit project in Denver to include payments.

UberEats has partnered with Starbucks, McDonald’s and other restaurants for delivery, and has added corporate meal delivery. But investors have criticized Starbucks for relying too much on Uber for delivery; and McDonald’s recently renegotiated its deal with Uber Eats to lower commission fees and to end exclusivity.

Uber's ambitions are fueled by a $500 million investment from PayPal, which will fund work on a mobile wallet and other payment technology.

Uber also needs to expand services for its drivers by treating them like small businesses. Much like fintechs such as Square and Stripe have used their enrolled bases of small merchants to cross-sell other services, Uber can use its base of both drivers and riders to build out its own ecosystem.

“These drivers are in need of basic financial services,” Crone said. “There’s disbursements, cash management and other services.”

Uber did not return a request for comment. Most of the new jobs in New York will be payment experts and engineers. Uber’s payments chief Peter Hazlehurst spoke at a recent recruitment event, reports CNBC.

Hazlehurst was one of the designers of Google Wallet and also worked as an executive or advisor for several payment technology companies, including Yodlee. “This is a man who understands every nuance of the payment ecosystem,” Crone said.

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Gig economy Credit cards Fintech Uber Grab U.S. Singapore
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