What makes a ride worthwhile? Rethinking e-hailing models in South Africa

South Africa’s e-hailing market is entering another period of change. Uber’s decision to discontinue UberX from 1 September has renewed discussions about how ride categories are structured and, more broadly, what passengers and drivers need from a sustainable e-hailing model.

Ride-hailing platforms need to offer passengers transport at prices they can afford, while ensuring that the drivers providing those trips can earn enough to justify the cost of doing so. The bigger question to ask now, as the market evolves, is how we get that balance right.

Affordability is key

Consumers remain under financial pressure as a result of economic as well as socio- and geo-political challenges, and it can’t be ignored that transport represents a recurring household expense. For someone who uses e-hailing to commute to work in particular, relatively small differences in the cost of individual trips can add up quickly.

There are factors to consider from an e-hailing driver’s perspective too. The costs of fuel, maintenance, insurance and either vehicle finance or rental expenses all add up, not to mention the cost of kilometres travelled without a passenger. The vehicle itself also represents a significant investment.

The current discussion around UberX has highlighted how ride categories can play a significant role, where drivers may choose vehicles partly according to the trips they expect to access and the income they believe those vehicles can generate.

This means that affordability cannot come from continually pushing fares down. If a passenger cannot afford a trip, this means that the service has failed to meet their transport needs. And if the fare does not make economic sense for the driver, the same trip becomes difficult to provide sustainably.

A sustainable ride-hailing model

Platforms should give passengers and drivers more control over the terms of individual trips. Passengers should be able to consider the price alongside information about the driver and vehicle before deciding who to travel with. Drivers should be able to see the fare, pickup point and destination before accepting a request, and decline or counter an offer when the trip does not make financial sense for them.

Instead of a platform setting a fare that both sides must accept, passengers can propose what they are willing to pay and drivers can accept, decline or counter the offer. The passenger then chooses from the drivers who respond. This gives both sides a practical role in determining whether a trip goes ahead, rather than leaving that decision entirely to an algorithm.

In fact, research published this year by Oxford Economics, conducted in collaboration with inDrive across seven emerging markets, provides useful insight into why this approach works well in a South African context. It found that fare negotiation can enable trips that might otherwise not happen because the price is too high for a passenger or too low for a driver. The research suggests that allowing both parties some discretion over price can help the market find a point at which a trip works for both.

The amount drivers retain from these trips is also important to consider. Platform fees form part of the driver’s cost of earning and ultimately affect what remains after fuel and other vehicle expenses. As such, discussions about affordable fares need to consider both what the passenger pays and what the driver earns from that payment at the end of the day.

The changes taking place in South Africa’s e-hailing market give us an opportunity to examine these fundamentals. Different ride categories will continue to serve different customers and budgets, but the more important question for the industry’s long-term development is whether the underlying model gives passengers sufficient value to keep using the service and drivers sufficient reason to keep providing it.

A sustainable market requires both, with platforms continuing to improve affordability and safety while giving riders and drivers meaningful information and control over the decisions they make on each trip.

By Ashif Black, Country Representative for inDrive South Africa