Uber Enters the Financial Services Market

July 8th, 2016

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The online transportation network company Uber shook up the transportation service industry when it introduced the idea of ride sharing. It was a revolutionary development that allowed private citizens to use their vehicles to pick up passengers and earn money for doing so. The service quickly spread around the United States and the world. The company currently provides ride sharing services in 66 countries and 449 cities globally. Other ride sharing companies like Lyft have since entered the market to compete with Uber for customers and drivers. In order to attract and retain drivers Uber has introduced several services, one of which should serve as a wake up call for the banking industry.

Uber has partnered with GoBank to offer business checking accounts and debit cards that allow drivers to get paid immediately instead of once a week. The account functions just like a regular business checking account, and in addition to collecting instant payments users can transfer funds, pay bills and deposit funds directly from other sources. Drivers can add cash to their account for free by stopping into any Walmart that has a GoBank location or by paying a small fee at any participating 7-11, Rite Aid, CVS or Walgreens. Drivers can even order paper checks for $5.95 from GoBank.

The service is offered only in the United States for now, but Uber has said it wants to eventually offer similar services to drivers around the world. The account fee is $8.95 a month but fees are waived for anyone who has initiated an instant pay transaction in the previous six months. Drivers love the fact that they can get paid instantly. Once the fee is added to the account drivers can access cash through a network of over 40,000 ATMs around the United States. The business checking account can also be a good way to keep track of Uber related driving expenses and track profits for tax purposes.

Uber picked the right partner to expand into financial services. GoBank is a subsidiary of Green Dot Corp., a financial services and technology company that says it is on a mission to reinvent personal banking for the masses. Green Dot pioneered the prepaid debit card business and is the leading provider of reloadable debit cards in this country. They also offer online mobile checking accounts that can be managed directly from the user’s smart phone. Green Dot has a relationship with Wal-Mart to provide prepaid debit cards and checking accounts to Wal-Mart customers. The company has marketed its products and services to people who had no previous relationship with a bank or were simply unhappy with traditional banking and wanted a more tech savvy banking relationship. Green Dot’s novel approach to providing banking services made it the perfect fit for Uber’s new instant pay process.

Uber is looking to provide other financial services to its drivers as well. It has a pilot auto leasing program underway, called Xchange Leasing, that is administered by an Uber subsidiary and offers its drivers leases on used cars, and permits them to drive unlimited miles and turn the car in with just two weeks notice. Some leases also include routine maintenance as part of the contract. Uber expects this will enable it to attract and keep drivers as they continue to expand and add services.

If all 400,000 or so Uber drivers in the United States switched their banking relationships to GoBank tomorrow it would not be a tremendous blow to the banking industry. The real threat to the industry is not in this one relationship but the fact that innovative technology companies like Uber are finding new aggressive ways to market financial services, and they are establishing relationships with those the industry has not previously served and do not care for the way the banking industry currently works. These companies are combing technology with financial services in a way that is making inroads with younger tech savvy consumers.

While Uber’s limited expansion into financial services probably won’t keep many bankers up at night, the marketing approach behind it is definitely a potential problem. If tech savvy companies that are popular with millennial consumers begin to aggressively offer financial services offer to their employees, associates and customers—many of whom are millennials—traditional banks could have a hard time building a relationship with that generation of consumers.

Community banks have always had to compete in a marketplace crowded with other banks and credit unions. They will find themselves increasingly competing with technology companies whose product just happens to be financial services. Banks are going to have to change their approach to conducting business and marketing their services to the next generation of consumers to maintain market share and grow their customer base.

TimMelvin

Tim Melvin is the publisher of Community Bank Investor.