Uber’s payout problem is a warning to the entire gig economy

Uber’s corporate existence has jumped from one PR crisis to another, but the company has always been lauded for how seamlessly it handles payments. Until now.

A payment glitch that made headlines over the weekend shows how fragile the promise of “faster payments” can be, and demonstrates a challenge to a gig economy built around unpredictable workload and irregular payrolls.

In Uber’s case, its Instant Pay system did not work for a time, prompting complaints from drivers in California — with some showing up at an Uber facility in the Bay Area to complain. While Uber reported the glitch had been fixed, the ride-sharing company on its site did not disclose detailed information on what went wrong. It also did not disclose estimates of how many riders were affected, the geography or the time-frame.

John Taggart/Bloomberg

When everything is working properly, Uber drivers can use Instant Pay up to five times daily to draw income, and the product offers instant availability to any driver with a debit card.

As is often the case with payment outages, the problem is as much about the response as it is the underlying issue. Additionally, while most of the reporting suggested the outage took place on Friday, some drivers reported having problems with Instant Pay as far back as early August.

In an email, Uber's public relations office said it identified an issue affecting drivers’ visibility into their trip earnings and the ride-sharing app's Instant Pay feature. The issue has been resolved and drivers should be able to use the feature again as of Monday, Uber said.

The bank that serves as Uber's Instant Pay debit partner, Green Dot, did not return a request for comment. PayPal, which also has marketed a payment processing relationship between Uber and Braintree, did not return a request for comment.

Growing pains for the gig economy
Providing payroll services for the gig economy has become big business for fintechs, with banks and cryptocurrency companies also getting involved. The idea is to create an environment where workers are comfortable accepting digital payments as readily as they do cash.

This means focusing on faster payment options, but these are not universal to every type of worker. Uber's method, for example, is built on debit cards so it requires the driver to use a debit or prepaid card to receive funds.

Despite this level of activity, the industry has not held the emerging fintechs to the same degree of accountability as the traditional technology companies that process biweekly paychecks, according to Richard Crone, a payment consultant.

Conventional payroll systems have redundancies operating for those times when a primary system goes down; the same is not necessarily true for the systems available to 'gig' employers.

“Funding delays have always plagued micro-merchants,” Crone said. “Micro-merchants need their money instantly. The reason people take on an Uber job is to get paid more frequently.”

Beyond providing flexibility, real-time payments have myriad benefits for shopping, mobile commerce and supply chains. But there are also execution and security risks given the lack of time to vet and process transactions when funds must be made instantly available.

As such, redundancy has become a standard part of modern transaction systems. For example, Visa, which suffered a major glitch this summer in Europe, is in the midst of a major overhaul designed to ensure constant uptime in all markets.

Communication and redundancy
“5 nines” is a normal aspiration and track record (“5 nines” = 99.999% availability), said Rick Oglesby, founder and president of AZ Payments Group.

"You don’t achieve 5 nines without redundancy. Most processors build that redundancy into their platforms so that they can provide 5 nines out of the box," Oglesby said. "However there are some merchants, gateways and processors that go beyond using the redundancy built into their selected processors."

If and when something goes wrong in a real-time system, it's imperative that users get notified instantly to avoid a backlog of transactions and user complaints that can delay the upgrade to fix the problem.

“It is equally important that the payment solution be designed so that it is transparent and accountable as well as reliable,” said Tim Sloane, vice president of payments innovation at Mercator Advisory Group.

For example, a payment notification with expected delivery date might best be delivered when the payment is posted to the payment provider, Sloane said. “That way the recipient will know the intent of the sender and can notify the company if an error occurs.”

Uber's brand is partly tied to its smooth payment experience, making it even more important that it feed that reputation with transparency and communication.

“Nobody wants their expectation of receiving a payment proven wrong, but it becomes slightly more acceptable if both the failure and the party responsible for the failure is recognized early,” Sloane said.

Uber accessees Green Dot's platform through an API to pay drivers immediately and offer incentive marketing such as rebates for cash purchases. It's a system Green Dot hopes to expand to other clients.

“The more information shared by the company and its payment partner, the more confidence drivers will have and the more traceable any failures will be,” Sloane said. “If Uber sends me a note saying that I will receive $120 by 6 PM today for today’s trips but I don’t get the same notice from the payment supplier, I can recognize early that something is up and call Uber to investigate."