India show us that Uber is really a domain specific payment business

By Bernard Lunn

I see the so called sharing economy services such as Uber and AirBnB as payment systems with a domain specific wrapper. They work for both parties because payment is so easy.

At some stage this was always going to bring them into competition with payment specialists. One can always trust Uber to take the gloves off and compete head on. What is interesting is that they have chosen India as their battle-ground, as this news reveals.

India is a critical market for Uber. They have announced plans to invest $1 billion into India and, according to Amit Jain, president of Uber India, it is “the largest market geographically for Uber outside the US.”

This looks set to be become a knock down drag ’em out fight with Ola, the local rival in India. The peanut gallery will enjoy this as much as the fight against Lyft in the US. The investors who have pumped in $676.8m into Ola may not enjoy it as much. (Another contender is Meru Cabs, which was only funded in March 2015 with a slightly different model of metered rides),

India is a different battleground to America because mobile payments have leapfrogged over cash and credit cards.

This is why Paytm is such a success story in mobile payments.

In America, paying Uber by credit card enables the driver to get paid and Uber to get their intermediary fee. In India cash was often preferred (because not everybody has a credit card), which makes it hard for Uber to take their intermediary fee. Mobile payment is as easy as cash but also enables Uber to take their cut.

Uber used to partner with Paytm. Instead of paying by cash or credit card, the customer paid using Paytm or Airtel Money. Now according to the news, Uber plans to introduce its own mobile payment wallet and is “planning to apply to RBI for the licence” (RBI is Reserve Bank of India, both the central bank and the issuer of banking licenses).

The Uber “semi-closed wallet” is a big deal if it gets approved. It creates a closed loop system that would lock out alternative taxi services.

Imagine Uber offering an alternative to Visa and Mastercard. Of course they would not do that because the credit card networks are already so dominant. The Uber move is feasible because mobile payments – while growing fast in India – is still at a nascent stage.
This prize is making Uber take an unusual step – ask for permission from a regulator (rather than acting and asking for forgiveness later). According to the Times of India report:

“At present, rules laid out by RBI does not give permission for marketplaces to offer closed wallets on their respective platforms but a semi-closed wallets can offer digital payment of cash to several merchants on a marketplace. Uber connects drivers to consumers using its technology and a semi-closed wallet would ensure Uber is abiding by the law of the land. “

This one will be interesting to watch. It is not just the India market at stake – huge as that is. It is the other markets where mobile payments are leapfrogging the cash and credit card stage of development.

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