Grab and Go-Jek face the new challenge of fare regulators

Singapore and Indonesia say they want to safeguard drivers and riders alike.

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Grab and Go-Jek face the new challenge of fare regulators

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.

SINGAPORE—Indonesian and Singaporean lawmakers are tightening regulation of ride-hailing fares in a sign that authorities are increasing oversight of service providers such as Grab and Go-Jek now that apps have become key links to mass transportation.

The recent development could weigh on the ride-hailing operators’ dynamic pricing model, in which fares vary based on supply and demand to maximize profits, forcing them to rethink their pricing strategy.

Both countries have moved to give authorities greater power over how fares are set and communicated to consumers. Singapore’s parliament last week passed a bill that will give regulators power to curb overcharging on ride-hailing applications, while Indonesia earlier this year set maximum and minimum fares on motorbike rides booked via an app.

Singapore’s and Indonesia’s moves will likely put existing ride-hailing services on a level playing field with traditional taxis as well as new market entrants. A day after Singapore’s new bill was tabled last month, the share price of taxi company ComfortDelGro rose 2.5%.

The moves could also influence regulators elsewhere in the world, amid signs that some governments are keen to increase regulatory oversight of the young industry.

Singapore and Indonesia have the world’s highest ride-hailing penetration rates, with 52% of all internet users taking advantage of the service in Singapore, according to Global Digital Report 2019, compiled by We Are Social and Hootsuite. The figure is 51% in Indonesia.

On August 6,  Singapore’s parliament passed the Point-to-Point Passenger Transport Industry Bill, which was tabled in early July. The legislation seeks “to facilitate the delivery of safe, reliable, efficient and customer-focused services” as well as “to enable the development and operation of innovative and accessible services.”

The bill proposes that authorities have some power over pricing. It may require ride-hailing operators like Grab and Go-Jek to fix the components that go into fares and to set maximum and minimum prices.

During a parliamentary discussion on August 6, one lawmaker stated the regulator’s oversight on pricing should not overreach, while another proposed to set an upper limit for ride-hailing fares, which can fluctuate widely, to protect commuters.

Senior Minister of State Janil Puthucheary, who represents the transport ministry, explained that the proposed fare regulation was to “ensure there is transparency at the point that the commuter chooses the ride” and that it did not intend to start regulating fare levels.

The new framework would commence in June 2020, the minister said.

According to Singapore’s Land Transport Authority, which earlier this year conducted a public consultation on potential regulatory changes, one request it received was to regulate surging prices.

Ride-hailers’ fares are based on supply-demand economics; fares go up when demand is high. During rush hour or when it is raining, fares can soar, although details on how such surge fares are determined remain unclear.

Ride-hailing services can also add other charges. Singapore-based Grab in March started charging 3 Singapore dollars ($2.2) for every five minutes that a passenger is late in arriving to the pickup point. This charge only applies in the city-state.

Consumer unhappiness with fares increased last year after Grab acquired rival Uber Technologies’ Southeast Asian business and effectively began to dominate the Singapore market. Singapore’s competition commission said that it received “numerous complaints” regarding increases in effective fares and that it found “effective fares had increased between 10% and 15% post-transaction.”

“There is a public interest in making sure that all commuters are treated fairly for what is essentially a public transport service,” said Walter Theseira, a transport economist at Singapore University of Social Sciences. He added that he did not foresee regulators being involved in the actual business of determining the cost of a ride.

Yet, with authorities having more of a say, Theseira said, “ride-hailing firms have to think more carefully about the consumer impact of their pricing decisions.”

If Singaporean authorities decide service operators must set a maximum price, they could end up depleting the ranks of drivers. A 62-year-old man who drives for Grab and Go-Jek in Singapore said that if the government started to control fares, and drivers’ income dropped accordingly, these workers “would resist doing jobs.”

He added that “a lot of people will be turning up for other work.”

Operators are treading carefully amid these government initiatives.

A Grab spokesperson said in a statement to the Nikkei Asian Review, “We remain committed to serving the needs of our driver-partners and passengers, as well as advancing our vision for the future of mobility in Singapore; one that is smart, safe, and seamless.” The statement adds that this can be achieved through a regulatory framework that is “forward-looking and fair, and supports innovation.”

A Go-Jek spokesperson said, “A policy environment that protects commuters and drivers, as well as an open and contestable market, is integral to maintaining Singapore’s position as a key market for urban mobility in Southeast Asia.”

Indonesia, where Grab and Go-Jek have been waging an intense battle for market share, said its move to set maximum and minimum fares was aimed at protecting drivers as well as consumers.

Service providers now must charge between 2,000 rupiah and 2,500 rupiah (14 cents to 18 cents) per kilometer for motorbike rides in the greater Jakarta area.

Experts say Singapore and Indonesia could trigger a global trend.

“There are really no major cities I can think of where taxi fares and services are completely deregulated and left to market forces,” Theseira, the transport economist, said. “I expect that ride hailing will be treated no differently. I think enlightened regulators will refrain from using their powers excessively, but all regulators would want to have the legal authority to exercise powers if needed.”

Grab currently operates in eight Southeast Asian countries, while Indonesia-based Go-Jek is in four. Grab will invest $2 billion in Indonesia using funds from the SoftBank Group over the next five years.

Competition between the two companies is intensifying in Asia. Both brands call themselves super apps, which alludes to the multiple services, from deliveries to payments, that they provide. But ride-hailing remains a key business.