What does the uprising of drivers Uber for the payment industry

With the development of digital platforms linking service providers and consumers, it is increasingly possible to notice a strange phenomenon - one of the parties is starting to find flaws in the seemingly perfect business model yesterday. For the processing company PayOnline, such digital platforms are of particular interest, therefore, trends affecting this market segment are always relevant for us. The following translation of the material, the author of which gives the above-mentioned phenomenon a special definition: "amnesia of the matchmaker model."

Matchmakers are companies that help two or more groups of clients find each other within their platform. This concept includes both dynamic public companies, such as Alibaba, Facebook or Visa, as well as the most expensive startups like Airbnb and Uber.

The frightening epidemic struck many matchmakers who are lucky enough to solve the most serious problems of this model: successful launch and large-scale growth. According to Karen Webster, Uber, Facebook, Android and even OpenTable along with payment networks and some other innovators suffer from this disease. It arises from one of the interested participants of the platform who had previously gained considerable benefit due to its rapid growth and features of its model. Now, these participants want to continue to get the same results and even more, but at the expense of even less effort. In this material, Karen diagnoses and suggests a medicine that, ironically, turned out to be exactly the same tool that initially ensured the success of the matchmakers.

An epidemic is rampant among matchmakers

This fact is of particular concern because it is one of those mysterious diseases that affects businesses when they least expect it. Probably this is why it is impossible to prevent it in advance. There is no definite medicine, and the path to obtaining it can be painfully long, exhausting both mentally and physically. However, if your company does not belong to the category of match makers and you think that it has immunity, you may need to think carefully and once again. This disease may well have a significant impact on your ability to work with matchmakers both now and in the future. The latter depends on how widespread the epidemic is and how badly the match makers who survive it will suffer.
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Diagnosis: amnesia of the matchmaking model.

This state affects such companies after they invest billions in their platforms, achieve their large-scale growth by offering attractive conditions for all parties involved in their work and benefiting from it. Such players have already transformed the sectors in which they operate. It all starts with how one of the sides of the platform suddenly attacks the matchmaker and begins to demand changes. Like a cage, which suddenly begins to behave hostile to the native organism and rejects the body that gave it life.

Take, for example, Uber

Ask any start-up matchmaker to admire the most that I, by the way, do every week on The Matchmaker Is In . The word Uber so often sounds in response, that I have to change the wording of the question a little: “And besides Uber, which matchmakers do you most admire and inspire?”

There is no doubt that Uber, with its ability to apply technology to accelerate the growth of the matchmaking economy, has long become a cult company in this environment.

The success story of Uber today is known to all and sundry. Having managed to make efficient use of mobile phones, operating systems from Apple and Android, as well as payment tools, cloud and some other technologies, such as GPS and maps of 2009, the Uber platform has completely changed the look of the transportation industry. In the US, the service almost single-handedly eliminated the problems of interaction between drivers who want to earn and increase their employment and consumers who are trying to get from one part of the city to another and are ready to pay the driver who will help them do it.

Thanks to UberX (UberPOP outside the US), drivers got even more customers, and consumers are another convenient way to get from one point to another. Previously, they chose between four options: to drag to the bus stop or subway in inclement weather, leave the office or raise a hand to catch a taxi and go to a work meeting or even buy a car. Consumers are well able to assess the "profitability" of each of these choices in a given situation. As for UberX, the opportunity to jump into such a car, drive there where it is necessary, without thinking about the payment that occurs at the time of exit from the salon by itself - magic, which often puts an end to the question of the choice of means of transportation by the client. The combination of reliability, consistency of services, tangible benefits and inconspicuous payments makes Uber's experience a simple and relaxed way to move around the city. And besides - also in a very attractive offer for drivers.

They, of course, represent the second interested party, which is necessary for the service in order for its matchmaking engine to buzz and roar as expected. The first partners of Uber were the drivers of limousines, who had the opportunity to monetize the “windows” in their work schedule. The service paid such drivers a “lift” for registration and guaranteed an hourly rate, regardless of how much time they actually spent on trips. Thus, the company has collected a large fleet of vehicles in order to be able at any time to provide the passenger with the necessary service. This strategy still remains central to a successful launch in new markets. By adopting it, Uber rather quickly became the main employer for black car owners, since replacing human dispatchers with automated technology reserving new orders as soon as they landed the previous passenger, of course, turned out to be a better deal for them.

Gradually, Uber expanded its platform with new services, such as UberEATS , and drivers received new earnings opportunities, such as delivering food to customers between trips. Uber, that is, the platform, “makes money” when its drivers, that is, the key and interested participant of this platform, are away, so the company has an incentive to provide them with employment options as often as possible, constantly developing and improving service in this regard.

Speaking of money. UberBlack drivers get 80% of the cost of the trip, after its assessment, whereas for UberX this figure is 75%. They all drive their own cars or the cars of the operator they work for. According to a recent article I read in preparation for writing this material, if Uber owned all the cars that provide services under its auspices, its cost would be estimated at $ 4 billion. Imagine how many such cars travel around the world. Drivers themselves pay for petrol and car repairs. The service also has minimum quality standards that cars must meet to be able to participate in its work.

For a very long time, the only enemies of Uber were taxi operators, who, after his arrival at the market, had to watch how the value of their business collapsed before our eyes . The taxi driver’s license was once an investment, which, according to the taxi drivers themselves, significantly exceeded the growth of the S & P index every year. Now things are very different.

In New York today, there are more than 1,600 offers for the sale of licenses and are not willing to buy them. Once upon a time they could cost more than a billion dollars. In our time, a license that some time ago could have gone for 1.3 million was recently sold for 400 thousand, but not a single bank agreed to fully credit its purchase. Over the past 7 years, Uber has become a simpler and more attractive way for consumers to move around, which made taxis, and hence the taxi driver's profession, less attractive. According to Uber, in New York alone, 500 new drivers are now turning to them every week to become partners.

But on the way to the successful takeoff of the Uber matchmaking platform, the cost of which is now estimated at more than $ 60 billion, there was one funny thing.

We look to the gift horse in the mouth

Some drivers now also pounced on Uber.

This dissatisfied likes freedom and flexible working hours, which can be customized, but do not like having to pay 20 or 25% of the tariff. They complain that they have to use their own car. They resent that the company does not provide sickness benefits, termination benefits or other benefits and allowances that ordinary companies have employees. They complain that Uber is trying to save on them wherever possible.

They are unhappy that there are too many service drivers on the roads. They are indignant when Uber lowers fares to attract more passengers and this is reflected in their profits. They even complained that they were paid weekly, until the company launched instant payments in conjunction with GoBank and now they don’t like that in order to receive such payments a separate account in GoBank is required. In many states, the drivers of the service in their blogs write that the hourly salary of Uber minus all costs has below the minimum wage for the state, even though such comparisons with the hourly rate are not entirely fair and correct. If Uber guarantees a minimum hourly rate in some cities, even in winter or later, when demand for such services is low, drivers complain that in order to benefit from this economically advantageous offer, they have to “take” at least 90% of all trips.

In many states, including Massachusetts, drivers have moved from complaints to actions

They sent their claims to the regulators and attracted lawyers to file class lawsuits against the service. Based on the fact that Uber itself sets the rules, including pricing, they require treating them as full-fledged full-time employees and providing them with guarantees for paying hourly rates. Of course, in the USA it happens the other way around: lawyers specializing in class-action lawsuits themselves find such disgruntled people to file a lawsuit, and with it, it is possible to get a tidy sum for their services.

I will not give any comments about the validity of these claims or the legal subtleties of labor law and cooperation with independent contractors, as this is simply not in my jurisdiction. My job is to analyze the impact of an epidemic of matchmaking amnesia that threatens this business model. You should also try to understand what it means for such companies and all who benefit from the services they provide.

In early 2010, when Uber invested billions in building its business and expanding the platform, everyone was truly happy. The service was something really new and everyone wanted to work with it. Drivers called Uber the best event in the entire history of the on-demand transportation business, relieving them of many problems and opening up new opportunities for them. For many, Uber was an easy part-time job - a way to earn extra income whenever it was convenient for the driver.

But for those for whom Uber has become a permanent and main source of income, the new service has shown what it means to be master of oneself and not worry about permanent employment. The technology allowed them both to receive a steady stream of customers who liked the service and to eliminate idle expectations between orders, since tariffs were formed based on how close the driver was to the passenger at the time of receiving the request.

Today, after receiving their benefits from the Uber service and all the technologies that the company has incorporated into it, their views on the usefulness of the platform have changed. Why should Uber get so much profit, drivers ask today, at their expense? The company is worth 60 billion, they complain, and, therefore, it is time to return some profits. After all, it was they who helped to establish the successful operation of the service.

It should be understood that such an argument ignores two facts.

Fact number 1. Apart from an estimate of the company's value of $ 60 billion, it is completely unclear whether Uber is really a profitable business and whether it has, therefore, money that it could “return”. It is impossible to say for sure, but there is a suspicion that one of the reasons why the company has not yet entered an IPO is that it would like to avoid public disclosure of problems with balance reporting. Anyway, Uber is hardly a hidden Apple-like structure that holds billions or at least hundreds of millions without any business in their bank accounts.

Fact number 2. Oddly enough, the main goal of the platform’s existence is to make a profit. And she does this by simplifying the interaction between different groups of her clients. One way or another, someone will have to pay for it. In the case of Uber, there are only two sides at the expense of which the company can extract its profits: drivers and passengers.

In a broader sense, this decision is made by matchmakers based on which side needs the other more. This side becomes "profitable" for the platform. In the Uber model, each side pays to become part of the platform: consumers pay the passenger fare, but it’s the driver who receives the payment for the service. Uber makes it possible for the driver to search for the passenger and provide services. Being a matchmaker, Uber thus monetizes the services of a driver who makes a profit thanks to the company's ability to provide the installer of the application and is ready to pay for the consumer’s trip.

Uber, of course, could change this approach. In a similar way, he could well decide to take 20% of the cost of the trip from the consumer, and after that - transfer the remaining main part of it to the driver. The most likely result of such changes would be a serious decline in the popularity of the service, which would lead to further discontent, this time due to insufficient employment.

Old melody for a new (short) mood

If you are familiar with the field of payments, you probably thought that you had already seen something similar.

This contradiction underlies the battle of merchants and payment networks , which has been raging for several decades now. Payment networks are invested in technologies that provide consumers with the opportunity to use the cards issued by any banks from any merchant accepting this type of cards. It was very cool until more and more consumers began to use this opportunity. As a result, the volume has seriously increased, which has led to an increase in one item of expenses in the balance of payment network operators called “interbank commissions”.

Like the drivers in the case of Uber, merchants all the time ask why the payment networks that determine and charge them a profitable percentage of interbank fees to ensure the operation of payment systems make money at their expense. Indeed, besides them, there are also consumers who like to use cards and who do it regularly, of their own accord, and thanks to the efforts of the merchants' shops, besides, it is also safe.

It is curious that this was the main argument that formed the basis of the recent antitrust trial involving Amex. The court of first instance determined that the agreements between Amex and merchants restricted the trade of the latter and violated antitrust laws. However, on September 26, the federal appeals court overturned this decision.

Referring to the basics of the theory of bilateral market networks and David Evans' detailed work on this topic, the judge of the appellate court ruled that merchants have no right to motivate buyers to refuse Amex cards in their stores simply because they are “more expensive” for sellers. The judge said that the measures supported by the merchants would simply force the payment networks to pass on costs to the consumer, which ultimately will have a negative impact on the business of the merchants themselves.

However, payment networks or ridesharing services are not the only companies that are affected by the amnesia epidemic of the matchmaker model.

This is Facebook with its built-in gaming platform and Android, wishing to monetize its free OS by embedding applications into it. This is OpenTable, which created an application that helps restaurants fill in free places and charge them $ 1 each time they just make a reservation with it.

These and any other matchmaker who has become big enough in the eyes of the “profitable” side, as a result of which she suddenly forgot about the value she once received from the platform, and now believes that she should receive the same service, but for less money.

Real victims

All this serves as an instructive story for matchmakers and everyone who wants to become them.

Achieving the goals that all matchmakers strive for — launch and large-scale growth — can also lead to the fact that the parties concerned will become victims of the amnesia of the matchmaker model. This disease will erase any memory not only of the value that they have learned from your platform, but also of the funds that they would have had to invest if they didn’t have such a convenient system for finding customers or other parties.

To heal him, you could return them most of the profits (or even all), which you instead probably put back into the platform. That is the money with which you could increase the value of the platform in the eyes of the other side. A value that you can get for the same money without your help is hardly possible.

The real victim of the amnesia of the matchmaker model is the diseased side

The scale makers that have achieved scale have enough support from the second party, in this case the consumer, to attract other service providers to meet their needs. And so, instead of being the cause of the disease, large-scale growth may in fact become a medicine for him.

Large-scale growth leads to sales growth. And this is the best medicine of all possible, if it seems to you that you have been struck by a disease called amnesia of the matchmaker model.