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Regulating commission and surge pricing charged by Ola, Uber will ‘kill the market’, say industry sources

The Indian government is looking to restrict commission rates charged by cab aggregators like Ola and Uber to 10%, Reuters reported. As of now, drivers who register themselves on Ola and Uber’s platform have to pay the platform 20% — or sometimes even more — of a trip’s fare as commission fee. The draft proposal, called “Central Guidelines for Aggregators”, which contains this condition along with regulating surge pricing and mandating face recognition for drivers’ verification, is expected to be formalised by the end of the year, according to the Economic Times. A senior industry source told MediaNama that capping the commission rate to 10% “doesn’t make the cut”. A second source said that “this is going to kill the market”.

“On what basis has this regulation been worked out? The government cannot just bring in such a regulation at its whims and fancy,” the senior official said. “This is just incessant regulation and is not required,” they said. A third source asked if the government had carried out a consultation process which “led it to believe that a 10% cap on commission rates” would be okay. “What about paying salaries to drivers? Are you [the government] really interested in business?” they continued. The consensus in the industry on the draft proposal appears to be that it will eventually not be good for the drivers who use Ola’s and Uber’s platform. 

How feasible is facial recognition for driver verification? The draft proposal, which was accessed by Reuters, also said that ride hailing services will have to set up control centres to track taxi movement and conduct a facial recognition check of drivers every three hours. A source told us that this falls in line with Transport for London’s findings about Uber where unauthorised drivers could upload their photos to other Uber driver accounts and take trips instead of them. “However, the government should consider what’s technically possible,” said the second person. “Does the government know the costs associated with this technology?“ the third source asked.

The senior official asked, “Are you doing this for train drivers, for public buses, and what about kaali peeli (cabs in Mumbai), do they have facial recognition? The industry representatives said that there can be more economically viable ways of verifying drivers, and facial recognition isn’t one of them since there will be huge costs associated with it.”

But: Making drivers undergo constant facial recognition checks as a means of driver authentication seems like a good idea, given that it can go a long way in ensuring passengers’, especially women’s, safety. However, cab aggregators will have to come up with an infrastructure where they can store facial data of drivers so that the data too remains protected at all times.

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Additionally, readers should note that Ola, while announcing its launch in London earlier this week, had said that its drivers would have to undergo a facial recognition system for continuous authentication. Similarly, Uber will soon be introducing a new facial matching process to authenticate drivers in London — meaning that enabling facial recognition isn’t as financially and technologically challenging as some people in the industry have suggested. Our industry sources remained non-committal on the issue of financial and technological viability.

Regulating surge pricing: According to the ET report cited earlier, the draft regulation also recommends capping surge pricing to a maximum of twice the base fare, and the base fare can be fixed by the state, or suggested by the aggregator and revised every quarter. The report added that no more than 10% of daily rides undertaken by a driver can be subject to surge pricing. Surge pricing has been a big issue for riders who use Ola’s and Uber’s services, especially during “peak hours”. In September 2019, Ashwani Mahajan, co-convenor of RSS affiliate Swadeshi Jagran Manch (SJM), wrote to various union ministers — Nitin Gadkari, Nirmala Sitharaman and Narendra Modi — highlighting the surge pricing issues faced by customers. After receiving the letter, the government had said that it was looking into the matter.

Sources told us that since Ola and Uber function on a marketplace model, where the ratio between demand and supply dictates pricing, capping surge pricing doesn’t make any sense. “During holiday season, airfares touch massive amounts. Has the government asked airlines why that happens?” asked the senior industry official we spoke to.

Data localisation, penalising drivers who cancel rides: The upcoming regulation also requires cab services to store all the data collected on their apps on a local server for two years, and also looks to create a mechanism for penalising drivers who cancel rides. The guidelines suggest a penalty of 10-50% of the total fare, not exceeding Rs 100, on drivers who cancel rides.

The Motor Vehicles (Amendment) Bill 2019, which was passed in the Rajya in July had categorised cab aggregators, such as Uber and Ola, as “digital intermediaries” and had mandated them to comply with the Information Technology Act. At the time, we had asked if the government was looking to regulate pricing of cab aggregators, including surge pricing.

Another blow for Uber: For Uber, this development come as potential blow since it was stripped of its licence in London — for the second time — after the city’s transport authority found that at least 14,000 trips were taken with drivers who had faked their identity on Uber’s app.

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