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Uber IPO breakdown: Challenges in India — local competition, driver protests, background checks, pricing regulation, cash payments

Stiff competition worldwide; food delivery competition in India from Swiggy and Zomato

Uber notes that its competitors have the capital to offer discounted services, driver incentives, consumer discounts & promotions, innovative products and offerings, and alternative pricing models. Some competitors, it said, have more resources and access to larger driver, consumer, restaurant, shipper, or carrier bases in a particular geographic market. Competitors’ ability to raise additional capital and of providing incentive is unknown, and “any adverse impact on their ability to do so may force certain of these ridesharing participants to focus more on profitability in the nearer term”. Uber notes that competitors offer incentives to both consumers and drivers including Ola in India.

  • Other brands in some places enjoy more brand recognition, longer presence, larger marketing budgets, better localised knowledge, and more supportive regulatory regimes.
  • Uber cites its Uber Eats business in India, where it competes with Swiggy and Zomato, “each of which has substantial market-specific knowledge and established relationships with local restaurants”, giving them the upper-hand. “Such competitors may be able to respond more quickly and effectively than us in such markets to new or changing opportunities, technologies, consumer preferences, regulations, or standards, which may render our products or offerings less attractive.”
  • Uber also expects to continue using continue using river incentives, consumer discounts and promotions to grow business relative to lower-priced alternatives, such as personal vehicle ownership, to increase engagement, and to maintain balance between driver supply and consumer demand.
  • Ridesharing category participants that offer incentives to consumers and drivers in the regions in which we operate include Lyft in the United States, OLA in India and Australia, Careem in the Middle East and Africa, and Didi in Latin America.

Drivers: Unrest, background check requirements, regulation, and its impact on Uber’s business

The number of drivers and restaurants could decline/fluctuate due to multiple factors such as drivers stopping usage of Uber, enforcement of local laws, low switching costs between competitor platforms, dissatisfaction with brand/reputation, pricing model (including potential reductions in incentives), ability to prevent safety incidents, or other aspects.

  • Driver “dissatisfaction” disrupt operations: Uber said it continues to experience dissatisfaction from a “significant number” of drivers; it expects this to increase as it would “reduce driver incentives to improve our financial performance”. driver dissatisfaction has led to protests by drivers, most recently in India, the UK, and the US, resulting in interruptions of Uber’s operations.
  • Driver dissatisfaction may led to user decline: Continued driver dissatisfaction may also result in decline in users, which could reduce Uber’s network liquidity, which would lead to further decline in users. “Any decline in the number of drivers, consumers, restaurants, shippers, or carriers using our platform would reduce the value of our network and would harm our future operating results.”

Background check and safety issues

  • Background checks for drivers: Changes in driver qualification and background-check requirements may increase Uber’s costs and reduce its ability to onboard additional drivers.. These checks vary by jurisdiction; regulators, legislators, prosecutors, taxicab owners, and consumers, have alleged that Uber’s background check process is insufficient or inadequate. Such checks for drivers for just Uber Eats are generally less extensive than those for ridesharing drivers.
  • Regulation for background checks: New regulations or laws requiring drivers to undergo a different type of qualification, screening, or background check process, may come in. Changes in these processes could either reduce the number of drivers in some geographies or extend the time required to hire new drivers.
  • Limitations in background checks: Uber relies on a single background-check provider in certain jurisdictions, and it may not be able to “arrange for adequate background checks from a different provider on commercially reasonable terms or at all”. If such a provider fails to provide background checks on a timely basis, Uber would be unable to onboard new drivers or retain existing drivers.
  • Investment in autonomous vehicles: Uber said its also investing in autonomous vehicle strategy, which may add to driver dissatisfaction over time, as it may reduce the need for drivers.

Risks relating to users’ behaviour, background checks, criminal activity and more

  • Criminal activity by users: Uber’s retention of drivers, consumers, restaurants, shippers, and carriers may be impacted if users engage in criminal or dangerous activity resulting in safety incidents causing reputational damage, liabilities for Uber. Uber may face litigation related to claims by drivers for the actions of consumers or third parties.
  • Criminal activity by drivers: Drivers or carriers, or if people impersonate drivers and engage in criminal activity or misconduct, or use Uber for criminal activity. Uber expects to continue to receive complaints from riders and other consumers, and also actual or threatened legal action related to driver conduct.
  • Risks relating to inadequate background checks: Qualification processes and background checks on Drivers (through third-party service providers) may not expose all potentially relevant information, they are also limited in certain countries due to national and local laws. Third-party service providers may fail to conduct such background checks adequately. Qualification and background check standards for Uber Eats drivers are generally less extensive than those conducted for Ridesharing drivers. In addition, we do not independently test drivers’ driving skills.
  • Abuse by driver, Uber rape case New Delhi: “There have been numerous incidents and allegations worldwide of drivers, or individuals impersonating drivers, sexually assaulting, abusing, and kidnapping consumers, or otherwise engaging in criminal activity while using our platform.” For example, in December 2014, a driver in New Delhi, India kidnapped and raped a female consumer, and was convicted in October 2015. Furthermore, if consumers engage in criminal activity or misconduct while using our platform, drivers and restaurants may be unwilling to continue using our platform.
  • Violence and assault against drivers: Certain regions where Uber operates have high rates of violent crime, which has impacted drivers and consumers in those regions. In Latin America, there have been numerous and increasing reports of drivers and consumers being victimized by violent crime, such as armed robbery, violent assault, and rape, while taking or providing a trip on our platform.
  • Accident liability on Uber: Uber may be subject to claims of significant liability based on traffic accidents, deaths, injuries, or other incidents that are caused by drivers, consumers, or third parties while using our platform, or even not actively using the platform.
  • Insurance liability: Uber’s auto and general liability insurance policies may not cover all potential claims, and may be inadequate to absolve it of all liability. Uber may face increased operating costs, affecting business, operating results, and future prospects. “Even if these claims do not result in liability, we will incur significant costs in investigating and defending against them. As we expand our products and offerings, such as Uber Freight and dockless e-bikes and e-scooters, this insurance risk will grow.”

Cash payments

Uber’s policy of allowing cash payments for rides and food delivery in certain markets, including in India, raises numerous regulatory, operational, and safety concerns. Cash-paid trips accounted for nearly 13% of all global gross bookings in 2018. It offers cash payments to drivers for ride-sharing and for food delivery India, Brazil, and Mexico, and in some countries in Latin America, Europe, the Middle East, and Africa. These payments include the service fee from rides and meal deliveries. Cahs payments may increase accounting for markets in which Careem operates. Some notes from the IPO on cash payments:

  • Concerns regarding cash payments: “Many jurisdictions have specific regulations regarding the use of cash for ridesharing,” Any failure to comply with such regulations could result in significant penalties and or suspension orders.
  • Security risks for drivers: The use of cash increases security risks for drivers and riders, including potential robbery, assault, violent or fatal attacks, and other criminal acts. In Brazil, serious safety incidents resulting in robberies and violent, fatal attacks on drivers while using our platform have been reported.
  • Infrastructure issues around managing cash payments: Establishing proper infrastructure to ensure that we receive the correct service fee on cash trips is complex and means that Uber cannot collect the entire service fee for certain of our cash-based trips. Uber’s systems for cash collections and deposits are not always effective, convenient, or widely-adopted by drivers. Creating and maintaining such systems require effort and resources, and Uber cannot guarantee that these systems will be effective in collecting dues.
  • Increased regulatory burden: Using cash raises compliance risks, including anti-money laundering laws. Uber may be affected if drivers fail to pay it, or if its own collection systems fail.

Pricing regulation

  • Uber’s revenue depends on the pricing model used to calculate consumer fares and driver earnings. Uber says this has been and will likely continue to be challenged, banned, limited in emergencies, and capped in certain countries.
  • In 2016, Uber agreed not to calculate fares exceeding the maximum government mandated fares in New Delhi following a petition Delhi HC relating to surge pricing.
  • Additional regulation of the pricing model could increase operating costs and adversely affect business. The model has been the subject of litigation and regulatory inquiries related to the calculation of and statements regarding consumer fares and driver earnings, the use of surge pricing during emergencies and natural disasters.

Competition laws

Increasing number of governments are enforcing competition laws with increased scrutiny, including in large markets such as the EU, the United States, Brazil, and India, around issues of predatory pricing, price-fixing, and abuse of market power. Many of these jurisdictions also allow competitors or consumers to assert claims of anti-competitive conduct. Complaints have been filed the US and India, alleging that our prices are too high (surge pricing) or too low (discounts or predatory pricing), or both.

  • Governments or regulators may prohibit future acquisitions, divestitures, or combinations or, impose significant penalties, may require divestiture of assets, impose other restrictions, including limitations Uber’s contractual relationships with users or restrictions on our pricing models.


Uber said it operates in countries known to have high levels of corruption; it received received requests from the US DOJ in May 2017 and August 2017 with respect to an investigation into allegations of small payments to police in Indonesia. The investigation also concerned other potential improper payments in India, Malaysia and China. The investigation is ongoing, and Uber may be subject to criminal sanctions or other liabilities if found guilty.

Risks of operating in international markets

As of December 2018, markets outside the US accounted for 74% of all trips. Uber said its business is substantially dependent on operations outside the United States, including those in markets in which we have limited experience, where its business will be adversely impacted if its unable to manage the attendant risks.

Uber will continue investing in international operations and competition with local competitors. Its been making significant investments in incentives and promotions to help drive growth in India, a country in which local competitors, particularly Ola, Swiggy, and Zomato, are well capitalized and have local operating expertise.

Listed risks of operating in countries outside of the US:

  • operational and compliance challenges caused by distance, language, and cultural differences;
  • resources required to localise business, such as translation of our mobile app and website into foreign languages and the adaptation of operations to local practices, laws, and regulations
  • restrictive laws and regulations, including those governing competition, pricing, payment methods, Internet activities, transportation services (such as taxis and vehicles for hire), transportation network companies (such as ridesharing), logistics services, payment processing and payment gateways, real estate tenancy laws, tax and social security laws, employment and labor laws, driver screening and background checks, licensing regulations, email messaging, privacy, location services, collection, use, processing, or sharing of personal information, ownership of intellectual property, and other activities important to our business;
  • competition with local companies or other services (such as taxis or vehicles for hire) that understand local markets better than we do, that have pre-existing relationships with potential platform users in those markets, or that are favoured by government or regulatory authorities in those markets;
  • differing levels of social acceptance of our brand, products, and offerings;
  • differing levels of technological compatibility with our platform;
  • exposure to business cultures in which improper business practices may be prevalent;
  • legal uncertainty regarding our liability for the actions of platform users and third parties, including uncertainty resulting from unique local laws or a lack of clear legal precedent;
  • difficulties in managing, growing, and staffing international operations, including in countries in which foreign employees may become part of labor unions, employee representative bodies, or collective bargaining agreements, and challenges relating to work stoppages or slowdowns;
  • fluctuations in currency exchange rates;
  • managing operations in markets in which cash transactions are favoured over credit or debit cards;
  • regulations governing the control of local currencies that impact our ability to collect fares on behalf of drivers and remit those funds to drivers in the same currencies, as well as higher levels of credit risk and payment fraud;
  • adverse tax consequences, including the complexities of foreign value added tax systems, and restrictions on the repatriation of earnings;
  • increased financial accounting and reporting burdens, and complexities associated with implementing and maintaining adequate internal controls;
  • difficulties in implementing and maintaining the financial systems and processes needed to enable compliance across multiple offerings and jurisdictions;
  • import and export restrictions and changes in trade regulation;
  • political, social, and economic instability abroad, terrorist attacks and security concerns in general, and societal crime conditions that can directly impact platform users; and
  • reduced or varied protection for intellectual property rights in some markets.

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