Reining in liquidity risk
With nearly 3,000 freelance drivers to every employee, Uber is different to traditional companies, and the key risk is payments not flowing smoothly.
As the giant of the gig economy, Uber is very different from traditional companies. These differences (a limited full-time workforce, notable reliance on technology, extensive use of private contractors) are also reflected in its approach to treasury, where its 11-strong team in Amsterdam and San Francisco must balance traditional risk monitoring and management with the demands of break-neck growth.
For example, the mobility giant currently has no FX hedges, despite now operating in 65 countries and over 50 currencies. The treasury team (which is supplemented by outsourced documentation capacity in Hyderabad) is now looking at a currency hedging programme, however.
Focus on liquidity
With 14 million payments now to make to its drivers and other service providers every month, liquidity is one of the most significant risks that Uber faces. The ultra high-growth company’s frequent opening of new services (such as ‘Elevate’ air taxis most recently) and broad international reach only add to this since forecasts can be limited.
“The challenges that we face are not necessarily just external. There’s a lot of internal challenges that we’re dealing with,” notes Gurjit Pannu, Senior Treasury Manager, EMEA and APAC.
“So we can spend a lot of time working on building a process and a risk framework around Rides, but then all of a sudden you hear that we’re launching Elevate New York and we need to set up a structure to ensure that we have the liquidity in place to allow that to operate. That’s what we consider our internal risk from a cash management perspective because it has an impact on our liquidity.”
The speed of Uber’s growth increases the challenge. “Whether it’s a new country that we’re launching into or it’s a new line of business in an existing country, things need to move really fast. So we have this tough task of making sure we’re not the bottleneck when it comes to expansion for the company, while not putting ourselves at risk,” says Pannu.
Moreover, as noted, this pace of expansion can make forecasts limited. “We don’t always get a forecast of how much cash we’re going to need in this country – what it’s going to take to really get this thing up and running. We use different tools to ensure that we’re covered from a liquidity perspectives, such that we’re not being a roadblock,” he adds.
Uber’s ‘risk mapping’ approach balances operational and reputation risk against cost, and emphasises pooling, on-time funding and ‘dual rails’ infrastructure.
Technology is a significant element of its approach. “We really want to leverage technology to help us take care of some of that,” Pannu comments.
It draws heavily on its internal QueryBuilder system, which pools much of the “very data-driven” company’s data. Treasury uses it “to start positioning forecasting and evaluate some of the risks that we’re seeing.”
In addition, its treasury management system plays a key role in Uber’s efforts to maximise the visibility of its risk. This requires looking beyond cash (of which it had $11.7bn billion at the end of June, including cash-equivalents) and bank accounts, according to Pannu.
All but a handful of its 500-plus bank accounts globally are plugged into the TMS. Previously it used to take Uber’s treasury team half a day to go through its array of accounts. The TMS “allows us to make decisions much quicker”, Pannu notes.
A further key element of Uber’s strategy is the potential impact of its liquidity risk. It is very focused on the reputational risk of failing to pay its 75 million drivers and other service providers on time. To mitigate this it has built surplus payments capacity through its ‘dual-rails’ approach.
The company quantifies the risk of its payment system going down by tracking internal and external ‘incidents’ in all of its markets every day. This shows where its highest risk of payment failures lies.
Periodically it reviews these logs (factoring in both each market’s incidents as a proportion of the whole and their financial impact). This determines whether it should prioritise putting a dual-rail provider in place in a market to mitigate the risk of a outage through an existing payment processor.
It also seeks to balance operational risks like going overdrawn on some accounts against cost. In this it emphasises ‘on-time funding’. The company seeks to hold “just enough cash to help the operations, but not build surpluses”, according to Pannu. Accordingly, it aggressively drains its cash pools of excess liquidity.
“We’re using our systems to really give us an idea about at least in the next seven or eight days what we can expect to pay out. That gives us enough time to react,” he says. “We give ourselves about a week’s buffer to get that liquidity in place.”
The goal is for operating accounts to have minimal balances, while also achieving a very high level of funding success.