Bank of Uber

February 27, 2019 (1321 words) :: A rundown of Uber's forays into the world of finance, and what that tells us about the system that gave rise to Uber.
Tags: gig-economy, financialisation

This post is day 58 of a personal challenge to write every day in 2019. See the other fragments, or sign up for my weekly newsletter.

The Uber credit card

In December 2017, Uber launched a consumer credit card for the US market. According to Scott Duke Kominers (writing for Bloomberg), the card is issued by Barclays and offers a decent sign-up bonus in addition to surprisingly high cash back rates.

But why would Uber offer a credit card so unrelated to its main product - a card whose benefits have been positively received by the credit card churning community, no less? Why are they branching out from their original, and extremely successful, line of business?

The Bloomberg article offers a reasonable hypothesis: to get transaction data.

The rewards Uber is offering for restaurants and travel are higher than the amount it can make back through its share of credit card transaction fees (interchange fees), which are at most 2.4 percent (plus a $0.10 flat rate). Uber is no stranger to money-losing business initiatives, but it doesn’t give away cash for no reason.

Maybe the payoff will come in the form of brand loyalty: Cardholders might be more likely to ride with Uber than with competitors like Lyft. But if that were the strategy, it’s strangely executed – you’d have to wonder why the card’s cash-back benefits are the same for taking Uber as for any other ride-share service.

So consider the value of something else Uber could get from the card: data.

Data is power, and Uber’s whole raison d’être is to accumulate power:

With individual-level transaction data, Uber could, for example, use cardholders’ dining-purchase histories to recommend restaurants on UberEats. Even more valuable would be access to information about cardholders’ use of competing ride-share platforms and other modes of transport.

So it doesn’t really matter if the card is unprofitable initially, because it’ll eventually recoup its costs through increased brand loyalty and/or making strategic use of transaction data.

Sub-prime car loans

From 2015-2017, Uber had a car leasing program called (I can’t believe this is real) Xchange Leasing.

From a purely business standpoint, it makes sense for Uber to offer car loans, or at least partner (and maybe revenue-share) with companies that do: giving potential drivers access to a car will increase Uber’s pool of drivers. That will increase Uber’s bargaining power with respect to drivers, allowing it to lower wages or otherwise exact concessions in order to extract more surplus value from drivers. And, of course, the interest payments on the car are another source of revenue.

From the standpoint of drivers, though, Uber’s car loan program was often predatory, trapping drivers in a cycle of ever-increasing debt. Plus, it wasn’t even working out well financially for Uber. So they cancelled the program, and replaced it with something possibly even more predatory: Vehicle Solutions, where you don’t even own the car, you just rent it (i.e., you pay for the privilege of being exploited by Uber).

Now, Uber technically ended its Xchange Leasing program, but that doesn’t mean it isn’t still trapping drivers in endless debt spirals, especially in the Global South where this sort of thing is more likely to go under the radar. It’s hard to find citable information on this that is astute and critical, as opposed to the usual hagiographic pro-corporate drivel, but what I’ve heard anecdotally (in the context of Sub-Saharan Africa) is that drivers will obtain a car loan through local financing companies (sometimes with a direct relationship/partnership with Uber, but sometimes not) that they will never actually pay off. Uber will take a cut of their earnings, and the minimum payment for the loan will eat up a big chunk, and whatever remains is the amount they’re supposed to live on + pay expenses with. Meanwhile, the principal grows and grows and grows. If they want to keep the car, they’ll have to keep driving for Uber.

This isn’t even regular wage-labour anymore, as atrocious as that can be. It’s debt bondage. And it can end horribly: in India, in early 2017, an Uber driver committed suicide after finding himself unable to pay off the debt for his car.

Why is Uber doing this?

It may feel weird to see a consumer tech company like Uber act like a bank, but it isn’t really that uncommon in our current era - it’s one of the consequences of financialisation. As Grace Blakeley writes in her Jacobin article The Latest Incarnation of Capitalism, financialisation isn’t solely about the rise of finance as a separate industry; in addition to that,

[…] nonfinancial corporations are increasingly engaging in financial activities themselves in order to secure the highest possible returns. The fact that this model is unsustainable — resting as it does on rising leverage and increasing profit distribution over investment in future production — is beside the point. Production was never the point of the capitalist enterprise — profit was. And the financialization of nonfinancial corporation has been an excellent way to maximize profit.

[…] businesses […] are using the profits they gain from the debt-driven spending of consumers to increase payouts to shareholders and engaging in financial activities, whether hedging, real estate investment, or even, in the case of Google and Amazon, buying up the debt of other corporations — in essence, acting like banks.

The problem with Uber acting as a bank is that it’s an unasked-for and unaccountable consolidation of power. It is terrifying, not something to be celebrated. Even market fundamentalists acknowledge that companies that get too powerful are a bad thing, because they distort the workings of the market. In Uber’s case, it’s hard to see how anyone could realistically compete to the point of displacement, given how much money it’s raised. Uber’s increasing role as financier is only one facet of the problem.

What’s the alternative?

Here’s a thought experiment. What if, instead of Uber being a multi-billion-dollar startup, the technology behind Uber was developed through public funding (akin to scientific government grants) and released to the public for free, with the purpose of establishing an open protocol. Taxi companies all over the world could take advantage of the technical innovations embedded within the app to make their own service better.

Of course, that possibility is so remote to be laughable. For Uber the company, the technology is merely a means to an end. They wouldn’t tolerate a world where the tech were freely available, even if that did help accomplish Uber’s proclaimed goal of connecting riders & drivers. The real goal is accumulating power, which it can then wield over consumers and workers in ways that are increasingly entwined with financialisation; the ridesharing app itself is merely a way to bootstrap that power (and Uber’s planned expansion into on-demand staffing gives us a hint of Uber’s potential scope).

Uber was able to raise $24 billion because this sort of business model is desirable and encouraged under capitalism. The apotheosis of capitalism is monopoly capitalism. As Hettie O’Brien writes in her New Socialist article Monopoly’s Fallacy:

Monopolies aren’t just the incidental or unfortunate child of a capitalism gone wrong. They aren’t due to insufficient oversight on the part of regulators, to extraordinary entrepreneurial talent or amazingly innovative technologies. Monopoly is the ultimate purpose of profit-driven enterprises operating within a competitive system. To erase or pacify them would require tackling their underlying basis: competition itself.

Uber wasn’t an accident, and the system that gave rise to Uber has not changed. Power will continue to concentrate in private hands unless the technology that facilitates this concentration is taken out of the capital accumulation process (decommodified, made freely available, etc).

Thanks to those who inspired today’s blog post: Jason, who suggested that Uber is a good demonstration of how capitalism tends toward monopoly capitalism, and Chandler, who suggested I write about Uber having a credit card.

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