Ride-hailing companies operating in Kenya are coming to terms with new regulations that, among other things, cap the commission they charge drivers per trip at 18 per cent.
Financial Standard talked to Bolt’s Regional Manager for Eastern Africa Kenneth Micah to understand the impact of this new regulation on the company’s operations, among other issues.
As a ride-hailing company with a sizable business in Africa, including Kenya where you have operated for five years now, what is your view on the mobility market in the region?
We view mobility in two ways: as an opportunity and as a problem to solve as well. In this regard, we are a mission-driven company. That mission is to make sure urban cities and centres can have an on-demand platform where they can access a car, motorbike, tuk-tuk (three-wheeler) and scooter as well in Africa. This is the very purpose that they would have needed a private car.
Why do you see it as an opportunity and a problem at the same time?
Infrastructure is long-term and fixed. I mean, Nairobi has just finished the expressway, and very few other cities can do parallel roads and increase capacity on the same resources. Cities are growing, and urbanisation is increasing, and that brings a strain on the infrastructure. If everybody is to keep using a private car, which is growing at a constant rate, this will bring a lot of traffic congestion and, of course, make cities smoggy. Our mission is to decongest cities and relieve the government of the pressure to create more parking spaces in events, malls, and extra lanes. We give you an alternative so that you do not always have to drive your car.
In working towards embracing these opportunities, what are some of the challenges that your business has encountered?
A lot. One of them is access to affordable cars for drivers, which are in good condition. If someone has to give up using their private car, they want an equivalently comfortable service that is neat and safe.
Within East, West and Central Africa, we see a challenge for drivers to access credit to buy their cars. Access to finance and financial inclusion for gig workers (like online taxi drivers) is not available.
In a lot of our markets, almost 80 per cent of our trips, are paid in cash. So these are transactions not going through the banks.
Something that a financial institution can track. They (drivers) are kind of considered risky, which will be priced into their borrowing. More than 80 per cent of drivers on the platform operate with leased cars.
How does this affect their take-home earnings?
Leasing takes up almost 20 per cent of the money they make, and that is a challenge we want to solve. We observe that the take-home earnings of a driver that owns or is at least paying towards ownership are better, and their service delivery is different.
Recently, governments have also seen a challenge to ride-hailing businesses. How are you navigating this new push for regulation?
Governments have now taken time to understand the ride-hailing business and appreciate the marketplace.
In a space where there was no regulatory framework, a lot of governments are now interested and are trying to create a regulatory framework. In as much as it is five years old, it is quite a new concept as it is disruptive to what people know as a taxi.
There have been misunderstandings around drivers (are they employees?), commission structure and questions like “are the cars owned by the platform or the drivers?” Governments have taken different approaches to regulating the relationship between the platform and passenger, the passenger and the driver, and the driver and the platform.
This could be through trying to cap minimum fares or capping the amount of commission charged. This is our new challenge but we are pro-regulations.
Was this push for regulations foreseen?
We are in over 45 countries and over 400 cities. A lot of these markets, like London, are so mature. We leverage this experience. When we see markets that are under-regulated, we just do not say yes and move in before the lights come on.
We take a proactive approach and share knowledge with local governments about what we have done in other cities. It is part of our pre-launch strategy.
What decisions have you consequently made as a result?
In Tanzania, we have had to make significant changes in terms of availability just because it was quite unsustainable to operate the business at such a thin cap whereas we have fixed costs.
We also educate drivers who are used to earnings per trip but platforms look at earnings per hour. There is always that inverse that drivers want to have high earnings per trips, but there is the issue of supply and demand - the higher the pricing, the lower the demand.
So we just have to get that sweet spot where pricing is ideal to more than sufficiently cover the operating costs and meets the passengers’ willingness to pay.
How will the commission cap affect your revenue flows and future plans?
Before the current regulations, as a platform, we were charging 20 per cent out of every trip.
This covers market growth, investment, incentives, and marketing initiatives.