Why on-demand transportation companies like Uber and Lyft are embracing financial services

In Mexico, where the majority of transactions are still cash, Uber is now offering its drivers a debit card and other financial services, including loans. Drivers’ payments will be credited to those debit cards, and the money can then be withdrawn at ATMs, or spent anywhere that accepts Mastercard. Drivers can also apply for loans, and receive discounts at certain merchants when using the card, issued in a partnership with Spanish banking giant BBVA.

“The goal is to make drivers’ everyday spending easier, and continue doing more for them,” a spokesman for Uber said. Last year Uber launched a debit card in the United States through Visa and GoBank. Lyft also announced Lyft Direct, a bank account and debit card available to its drivers.

These debit cards are just the latest example of how on-demand transportation companies like Uber and Lyft are offering more financial services to their drivers, streamlining how they get paid, and also, increasingly, how those drivers then spend that money.  

Paying drivers via these cards is easier for companies like Uber. And the company also benefits from increased cash streams when people load money onto the cards for future purchases, analysts said.

 “Companies then have access to these funds, to this cash flow, and can earn interest on it,” said Raja Bose, global retail banking and consulting leader at Genpact. It also builds customer loyalty, he said, saying that studies have shown that purchase amounts are higher when paying with stored value or credit.

“And if I have money on my Uber card I’ll probably think twice before using Lyft,” he said.

But offering financial services is not confined to the on-demand transportation sector.  Many non-financial companies are now offering payment options and debit cards, including Amazon, Starbucks and Walmart.

Such companies are well-placed to start offering financial services because they have large customer bases, digital prowess and an emphasis on quality customer service, a recent report from Bain & Company said. 

Another large benefit for these companies is the ability to gather data about customers’ spending habits, giving valuable insight for launching new products and services,  said Robert Le, an emerging tech analyst at PitchBook.  

With the rise of banking-as-a-service platforms, offering payment and banking services has also become easy for these non-financial companies, who simply partner with fintechs offering customized banking and payment platforms, Le said. Fintechs have stepped up to develop and tailor integrated payment solutions for companies because most legacy banking and payment platforms are simply not as flexible, said Salman Syed, vice president of business development at Marqeta, which provides technology to the on-demand food delivery company DoorDash, coordinating and securing instant payments between customers ordering the food and the participating restaurants.

“These (legacy banking) platforms are not built using developer friendly technologies, such as open APIs, cloud native platforms and modern developer languages,” Syed said, all of which have been key to banking as a service platforms.

These underlying fintech providers make it possible to do things like spend money earned while transactions are still clearing, something that most ordinary banks don’t offer. For example, with technology from GreenDot, Uber drivers can claim their earnings up to five times a day, and start spending the money right away.  

In countries like Mexico, where only 37 percent of the population has a bank account, according to the World Bank, the phenomenon of non-financial companies offering banking and payment services is also helping to bring the so-called unbanked into the world of financial services. It is also in countries like Mexico and India, where banking — and digital banking — are less developed that existing banks stand to face the biggest hits from competition offered by tech companies, the Bain report said. At the same time, there are also opportunities for traditional banks, especially in the United States. Rather than obtain their own national banking charters, an arduous process, most tech companies partner with an existing bank to offer financial services. Banks will likely start paying more attention, Le said, and seeing how they can be involved.

“Payments are just a natural extension for companies who are offering services, and this is something we will see for the long term,” Le said. “As far as banks, they can either partner, or they can roll out banking as a service platforms. It is going to be interesting to see how they respond.”