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Ola rejigs commissions to retain drivers

In 2018, the incentive structure was based on different targets for drivers with no standardisation. SoftBank-backed Ola has been trying to cut its losses per ride over the last 18 months, and gear up for a public market debut in the coming year.

Last Updated: Jan 07, 2020, 09.24 PM IST
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Ride-hailing firm adopts standardised driver commissions and moves away from the incentive-driven model as it looks to strengthen fleet.
BENGALURU: Cab aggregator Ola is adopting standardised driver commissions and moving away from an incentive-driven model to give its drivers better visibility into their earnings in a bid to revive the supply of drivers that has taken a hit over the past year.

The ride-hailing firm is also making a strong push towards leasing business to cater to new high-margin categories like corporate, self-drive and scooter rentals, people familiar with the development told ET.

Over the last two months, Ola has been standardising commissions it charges drivers at 25% nationally to offer predictability of income to its driver partners, they said. “With this move, drivers are clearly able to ascertain earning and differentiate it from variable incentives,” a person directly aware of the matter said. The commission excludes taxes levied by states.

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The move would help the company to conserve cash. Ola, which was earlier relying on a mix of fixed and incentives-driven payment model, now reserves just up to 5% of earnings to give back to drivers as incentives, a sharp cut from previous years.

However, there is some uncertainty over regulations in the sector as the government’s upcoming policy could regulate commissions. ET had reported on November 29 that the Centre was planning to cap commissions earned by cab aggregators such as Uber and Ola to 10% of the fare of each ride.

While documents shared with states by the central government showed that commissions would be capped along with new measures to limit surge charges, the draft policy has been delayed subject to further changes. Ola also plans to make an aggressive push to onboard more drivers this month, said the person quoted earlier.

While Ola and Uber continue to fight for customer wallet share in the country, their biggest issue has been keeping supply of drivers consistent as incentives go down, even as they fight regulatory scrutiny in every state. Earnings for Ola and Uber drivers had peaked in 2015-16 with both the firms doling out incentives as high as Rs 500 per trip, but the companies have since cut those down dramatically, according to research data shared by Valoriser Consultants.

In 2018, the incentive structure was based on different targets for drivers with no standardisation. SoftBank-backed Ola has been trying to cut its losses per ride over the last 18 months, and gear up for a public market debut in the coming year. An Ola Spokesperson confirmed to ET that commission rates across cab categories for driver-partners are at 20%.

PUSH FOR LEASING BUSINESS
Ola has close to 10,000 vehicles, making it Asia’s largest operating lease company. Regulatory filings show Ola had property, plant and equipment worth Rs 1,237 crore on its balance sheet for the fiscal year ended March 2019. “Both these businesses are high margin and low-risk investments,” said the person quoted earlier, adding that the strategy is different from its first launch in 2016 which didn’t take off.

In 2016, the company was leasing cars to drivers for an initial deposit and then monthly lease payments with an option to own the vehicle after three years. However, in less than a year, drivers started defaulting with loan payments due to a cut in incentives and increasing take rates.

This time around, Ola is looking at leasing to corporates and for its self-drive business and not to drivers to add more capacity on its platform. Both these businesses are high-margin for the company. It’s also working with businesses such as Vogo to lease two-wheelers to the firm for a monthly fee. Ola and Vogo had jointly said they will add 100,000 two-wheelers onto the roads with an investment of $100 million in sourcing the scooters. “There is also a layer of asset maintenance and management infrastructure being built to keep cost of running vehicles low,” said a person aware of the development.

LOSSES NARROWING
For 2018-19, Ola’s reported revenue rose 16% to Rs 2,155 crore while losses more than halved to Rs 1,158 crore compared to the previous year. Since then, the company has also trimmed its workforce and restructured the organisation to make it more streamlined.

Note: The story has been updated with a comment from Ola

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