Uber Really Wants You to Use Its Credit Card

(Bloomberg View) -- Earlier this month, Uber followed in the footsteps of hotels and airlines by introducing its own credit card. The card is issued by Barclays and is targeted at millennials. It gives cardholders 4 percent cash back on restaurant purchases, 3 percent on travel, 2 percent on ride shares and other internet purchases, and 1 percent on everything else. There are no annual or foreign transaction fees, and there's a $100 signing bonus.

That's a lot of cash back!

I'm no expert  on credit card promotions, but one thing is clear to anyone who can count: The rewards Uber is offering for restaurants and travel are higher than the amount it can make back through its share of credit card transaction fees (interchange fees), which are at most 2.4 percent (plus a $0.10 flat rate). Uber is no stranger to money-losing business initiatives, but it doesn't give away cash for no reason.

Maybe the payoff will come in the form of brand loyalty: Cardholders might be more likely to ride with Uber than with competitors like Lyft. But if that were the strategy, it's strangely executed – you'd have to wonder why the card's cash-back benefits are the same for taking Uber as for any other ride-share service.

So consider the value of something else Uber could get from the card: data.

Barclays states in its privacy policy that it can “share information about you” that it gleans from card use with “financial or retail partners.” In particular, it says, the information can be used by “financial or retail partner[s] to market to you." That means Uber has the right to use cardholders' transaction histories to refine its products and pricing.

An Uber representative assured me that the company isn't doing anything like that at the moment, and isn't even receiving individual-level data from Barclays. But the company has plenty of incentive to exercise its right to do so in the future.

With individual-level transaction data, Uber could, for example, use cardholders' dining-purchase histories to recommend restaurants on UberEats. Even more valuable would be access to information about cardholders' use of competing ride-share platforms and other modes of transport.

Right now, if you open the Uber app and price a ride but don't call it, Uber has no idea what happened. Perhaps you rode with a competitor, but perhaps you just decided to wait for prices to fall, or took a bus. If you're using the Uber card, by contrast, Uber could learn whether you took Lyft instead – and would know how much you paid.

Theoretically, the company might eventually learn enough to identify customers who habitually pay more for rides, and just charge them a little extra without telling them what's going on. Such an approach could backfire badly if people found out – but Uber has shown that it's willing to take provocative business risks.

Some people might consider exposure of transaction information to be an invasion of their privacy – but of course nobody's forcing them to sign up for the card. And we know that lots of consumers are perfectly willing to exchange data for convenience and a little bit of cash; they might not notice where Uber could be heading and might not care if they do.

Millennials have been known to “share and compare” their finances and give up privacy for pizza. The rest of us probably don't have much time to decide whether we want to do the same.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Scott Duke Kominers is the MBA Class of 1960 Associate Professor of Business Administration at Harvard Business School, and a faculty affiliate of the Harvard Department of Economics. Previously, he was a junior fellow at the Harvard Society of Fellows and the inaugural research scholar at the Becker Friedman Institute for Research in Economics at the University of Chicago.

1. It also tried to hawk flying cars

2. Technically, the bonus only vests after you spend in the first days, but you could easily spend that much or more for a single ride on New Year's Eve.

3. Disclosure: Since writing a previous column on Uber, I have engaged in periodic conversations with both Uber and Lyft regarding potential collaborative projects. No such projects have been launched and none relate to Uber's credit card program. I have not discussed the ideas in this column with anyone at Uber except in attempts to learn about Uber's strategy surrounding its card.

4. Eerily the privacy policy also reminds us, “Federal law does not give you the right to limit this sharing.”

To contact the author of this story: Scott Duke Kominers at kominers@fas.harvard.edu.

To contact the editor responsible for this story: Jonathan Landman at jlandman4@bloomberg.net.

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